David O'Sullivan

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In 2021, the United Kingdom (UK) exited the EU’s legal regime to become an independent entity for trade purposes – given this, the year witnessed the operation of the Trade and Cooperation Agreement (TCA) which governs the relationship between the UK and the European Union (EU), the negotiation of at least two other free trade agreements (FTAs) ( the UK-Australia FTA and the UK-New Zealand FTA), an application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) along with the establishment of the Trade Remedies Authority (TRA) and the issuance of its first decisions.  The present note summarises these key developments (and more) in UK trade over the past year.
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Continue Reading UK Trade: A Summary of Developments in 2021

2021 was an eventful year for international trade law and policy in the EU, with developments in several key areas.

The EU strengthens its trade policy toolbox

In the light of the recent ongoing problems with multilateralism and the continuing rise of China, the EU focused hard on strengthening its trade enforcement toolbox in a wide variety of trade related areas. This includes the use of recent tools and proposals for new instruments:

  • The Amended Trade Enforcement Regulation entered into force on 13 February 2021. This greatly expands the EU’s capacity to adopt trade countermeasures against third countries. It can now do so even before dispute settlement proceedings at the WTO or under other international agreements have been concluded if these are blocked by the other party. This would include, for instance, situations where a trading partner appeals an adverse panel report “into the void” to the non-functioning Appellate Body at the WTO, as well as in relation to a broader range of violations. The Commission is due to undertake a review of the Trade Enforcement Regulation, to consider additional commercial policy measures in the field of trade-related aspects of intellectual property rights, by 13 February 2022.
  • The FDI Screening Regulation, which has been in force since the end of 2020, has led to a growing number of FDI mechanisms notified or updated by Member States to the European Commission throughout 2021 (see here). For the EU, which did not have a role in FDI screening prior to this, this mechanism is starting to become a game-changer. In November 2021, the Commission published its first annual report on the screening of foreign direct investments into the EU. Of the 265 cases notified to the Commission between 11 October 2020 and 30 June 2021, 80% were closed by the Commission in Phase 1, whereas 14% of cases proceeded to Phase 2, with additional information being requested from the notifying Member State (the remaining 6% were still under assessment on 30 June 2021). The Commission issued an opinion, with recommended measures, in less than 3% of the notified cases. Actual prohibitions of investments by Member States appear to be limited for the moment, although there have been such instances (like Italy’s prohibition of the proposed acquisition of control in LPE, an Italian semiconductor equipment company, by a Chinese company). Moreover, parties sometimes abandon envisaged transactions prior to a formal prohibition. The imposition of conditions appears more common.
  • On 5 May 2021, the Commission published its proposal for a new Regulation to address distortions by foreign subsidies. The Regulation introduces three new instruments that would give the Commission the power to investigate foreign subsidies granted to companies active in the EU and identify whether they are causing distortions in the EU single market. Should the Commission identify distortive foreign subsidies, it could impose redressive measures to counteract their effects (see our blog post describing the Commission’s proposal here). If adopted, which currently appears likely, it would give the Commission far-reaching new powers. The Committee on International Trade, the leading committee in charge of the file within the European Parliament, has released its draft report on the proposal on 17 December 2021, generally supporting the new instruments and suggesting additional protections against home-market monopoly advantages and known future subsidies.
  • On 8 December 2021, the Commission published a proposal for a new anti-coercion instrument. The aim of this instrument would be to deter and, if necessary, retaliate against third countries exerting economic coercion against the EU or its Member States in order to influence their political decisions and policy choices (see our blog post describing the Commission’s proposal here). This is another example of a novel instrument in the field of trade that would grant the Commission with robust powers to address trade policy issues.
  • Negotiations on a proposed new International Procurement Instrument have also progressed in 2021. This instrument would enable the EU to limit, on a case-by-case basis, access to its public procurement market by companies from third countries which restrict access to their own procurement markets by EU businesses. This would represent a significant overhaul of the EU’s current public procurement system, which is currently one of the more open ones globally.

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Continue Reading EU Trade: 2021 Takeaways, 2022 and Beyond – What to Expect

On December 8, the European Commission (Commission) published a proposal for a new anti-coercion instrument (ACI) to deter and, if necessary, retaliate against third countries seeking to change the course of EU or EU Member State policy by exerting economic coercion against the EU or its Member States. Third country coercion is understood broadly and may range from using explicit coercion and trade defense tools, to selective border or food safety checks on goods from a given EU country, to boycotts of goods of a certain origin. Essentially, the draft Regulation’s aim is to preserve the EU and its Member States’ ability to make political decisions and policy choices without undue foreign interference.

The proposal builds on a Joint Declaration in favor of such an instrument, signed by the Commission, the Council of the EU and the European Parliament. Stakeholders have also recognized the problem of economic intimidation and coercion against EU interests in the Commission’s consultation, thereby supporting an EU-level instrument. As stated by MEP Bernd Lange (rapporteur on the new EU anti-coercion instrument, INTA Chair, S&D, Germany) the EU is operating in an “increasingly harsh geopolitical landscape”, and is increasingly the target of economic pressure.…

Continue Reading European Commission Proposes an Anti-Coercion Instrument to Strengthen its Trade Defense Toolbox

The European Commission’s recently released proposal for a Carbon Border Adjustment Mechanism (CBAM) forms a critical part of the European Union’s Fit for 55 Package, discussed in a previous blog.  The proposed EU CBAM will require importers of certain products into the EU to pay for the tons of carbon emissions embedded in those products in the form of CBAM certificates, the price of which would be tied to the price of emissions allowances under the EU Emissions Trading System (ETS).  The CBAM is expected to be phased in gradually from 2023 in the form of detailed emissions reporting requirements, transitioning to full implementation by 2026.  Although the EU CBAM has yet to be approved and details of the mechanism remain to be fleshed out via implementing acts, companies would benefit by evaluating their potential exposure now, not just to the EU CBAM but also to the measures that may be implemented in response by other countries, including the United States.
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Continue Reading The EU CBAM: What the Proposed Regulation Covers, What Happens Next, and What Companies Should be Thinking About Now

Yesterday, the European Commission published the long-awaited “Fit for 55” Package designed to drive forward the EU’s objective to radically reduce dependence on fossil fuels. As European Commission President von der Leyen stated in the press conference, the “fossil fuel economy has reached its limits”. Consisting of over a dozen initiatives, including both new and revised proposals, it aims to ensure that the European Green Deal’s objective of reducing carbon emissions by at least 55% below 1990 levels is met by 2030, ahead of the 2050 climate neutrality objective.

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Continue Reading The European Commission Proposes to Raise Climate Targets Across Sectors Under the Fit for 55 Package to Further Decarbonize the Economy

On February 18, 2021, the European Commission (the Commission) published its Communication on an Open, Sustainable and Assertive Trade Policy which we previously analyzed in our blog post. Below, we look into the Communication’s Annex on Reforming the WTO: Towards a Sustainable and Effective Multilateral Trading System.

The Commission in its Trade Policy Review listed reforming the World Trade Organization (WTO) as a clear European Union (EU) priority. The Commission notes in the Annex that “Not only is trade vital for our economy; promoting rules-based international cooperation is the very essence of the European project. The EU must therefore play a leading role in creating momentum for meaningful WTO reform.”  Achieving this goal clearly will require engagement with other WTO members. In particular, the Commission calls on the United States’ support to unblock the current Appellate Body impasse and to cooperate closely on reforming all aspects of the WTO.  The Commission will also organize consultations with China and India to better align their WTO commitments with the size of their respective economies.…

Continue Reading The EU’s Approach to Reforming the WTO Towards a Sustainable and Effective Multilateral Trading System

As the Biden Administration settles into its second month in office some signals have emerged that have offered insights into the potential direction of US trade policy. Key trade officials, including United States Trade Representative (USTR) Katherine Tai and Commerce Secretary Gina Raimondo, have testified before the Senate as part of their confirmation processes.  The testimonies and responses of both nominees, in combination with the recently released USTR “2021 Presidential Trade Policy Agenda” report, have provided an early blueprint of the President Biden Administration’s position on current trade issues — including USMCA, potential free-trade agreements, US policy towards China, and the climate agenda – and possible new directions.

The international community has been watching these early indicators closely in order to gauge the likely track of US trade policy.   Professionals from Steptoe’s trade group who practice in major jurisdictions around the world weigh in with their take on how those jurisdictions are reacting to these early signals from the US.…

Continue Reading International Responses to President Biden’s Trade Policy Positions

The European Commission published its Communication on An Open, Sustainable and Assertive Trade Policy on 18 February 2021 (the Communication). This follows a consultation on the EU’s Trade Policy Review which closed in November 2020.

The Communication seeks to reset the course of the EU’s trade policy in the context of global uncertainty and increased competition. Its key theme is “open strategic autonomy”, a concept characterized by three main elements:

1) furthering openness and engagement by making strategic use of the size and attractiveness of the EU Single Market;

2) enhancing the resilience and sustainability of value chains. The Commission in this regard seeks as a priority to identify strategic dependencies in supply chains, also to be addressed by industrial policy reviews; and

3) demonstrating assertiveness and encouraging rules-based cooperation in the implementation of EU trade policy to further support the EU’s geopolitical interests.

In line with its overarching objective of open strategic autonomy, the Communication suggests that the EU’s trade policy will focus on three core priorities:

  1. support the recovery from the pandemic and the fundamental transformation of the EU economy in line with its green and digital objectives;
  2. shape global rules for a more sustainable and fairer globalization; and
  3. increase the EU’s capacity to pursue its interests and enforce its rights, including autonomously where needed. In this regard, the EU will seek appropriate means to ensure effective implementation and enforcement of provisions on sustainable development in EU trade agreements, to level-up social, labor and environmental standards globally, but also to defend itself against unfair trading practices.

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Continue Reading The European Commission’s Communication on an Open, Sustainable and Assertive Trade Policy

On 30 December 2020, the European Union and the United Kingdom signed the “EU-UK Trade and Cooperation Agreement” (EU-UK TCA or the Agreement) setting out the terms for their future economic and commercial relations after the UK definitively leaves the EU Single Market and Customs Union on January 1, 2021.

The British Parliament approved the deal by a large majority on the same day. The EU will provisionally apply the Agreement until the European Parliament delivers its approval sometime in February or March.

The Agreement comes after a year of fractious and often acrimonious negotiations. Unsurprisingly, given the context and the premises for the negotiations set down by the UK from the start, the deal is more a divorce agreement than a springboard for closer economic ties.

The latter ambition would be typical in any other trade negotiation: the usual point of trade deals is to facilitate greater fluidity of exchange, and therefore greater economic integration, between two hitherto relatively separate economic spaces.

Yet here, the parties took as a starting point 45 years of deep economic, legal and social integration between the UK and the rest of the EU. Political events in the UK having precipitated its withdrawal from the EU, the EU-UK TCA is the trade equivalent of a separation agreement between an old married couple. The legacy of economic, social and security arrangements going back decades dictate that the “leaving” party cannot make an entirely clean break with its former partner. For its part, the other party seeks to protect its interests, including putting in place mechanisms to manage relations with  its former partner going forward. All of these elements are reflected in the terms of this Great Divorce. And, as is typical of divorce, the immediate effect is likely to leave both parties worse off.…

Continue Reading The Brexit Agreement: the Great Divorce

The European Commission (EC) on Thursday 17 December issued long-anticipated proposals for new digital technology regulation in the European Union (EU): the Digital Services Act (DSA) and the Digital Markets Act (DMA). Once formally adopted as EU Regulations, these proposals will set a new benchmark for regulating internet platform services. Given their international reach and…