On 14 December 2022, the Council of the EU (“Council”) and the European Parliament (“Parliament”) adopted Regulation (EU) 2022/2560 of the European Parliament and of the Council on foreign subsidies distorting the internal market (the “Foreign Subsidies Regulation” or “FSR”), which was published in the EU’s Official Journal on 23 December 2022. The FSR gives the European Commission (“Commission”) substantial new powers to investigate “financial contributions” granted by non-EU governments to companies operating in the EU and, where necessary, take measures to redress their distortive effects. Specifically, the Commission will be able to conduct such investigations through three new tools: two notification-based tools to investigate concentrations and bids in public procurements above certain thresholds and a general tool to investigate all other market situations and lower-value mergers and public procurement procedures.
The much anticipated proposal for a Regulation prohibiting products made with forced labor on the EU market was published by the European Commission (“Commission”) on 14 September 2022, one year after the initiative was first announced by Commission President Ursula von der Leyen in her 2021 State of the Union speech. The proposed forced labor instrument has the potential to significantly impact the supply chains of not only EU companies, but also of any non-EU company that sells products into the EU. The instrument would apply to any company that exports products from the EU or that sells products on the EU market, irrespective of where those companies are based, to which products they are selling, and to which countries and suppliers they source from.
Continue Reading The Proposed EU Ban on Goods Made With Forced Labor
On 29 August 2022, the European Union’s (“EU”) International Procurement Instrument (“IPI”) will enter into force. The IPI was adopted on 23 June 2022 after more than a decade of legislative preparations and discussions. It provides for a new trade policy tool which is designed to address the perceived lack of a level playing field in global procurement markets.
The IPI will enable the European Commission (“Commission”) to impose measures limiting non-EU companies’ access to the EU public procurement market if these companies’ governments do not offer similar access to EU businesses. Specifically, the IPI envisages two types of measures that can be applied: i) a “score adjustment” penalty on tenders submitted by suppliers from the targeted third country; or ii) the exclusion of such tenders from the procurement process. Such IPI measures would be applied following an investigation by the Commission, and after consultations with the country concerned.
Continue Reading EU’s International Procurement Instrument to Enter into Force at the End of August
It is generally known that EU anti-dumping and anti-subsidy measures are usually imposed for a period of five years, and that they can be (and usually are) extended for further five-year periods further to expiry review investigations. Similarly, operators facing trade defense measures will typically be aware that the repeal or the reduction of the duties can be obtained with interim review investigations or duty refund procedures. It is instead far less known that there is another, temporary, and, until very recently, long unexploited solution available to EU importers and end-users to ease the pressure of EU trade defense measures, namely the suspension thereof. This tool can be particularly relevant to EU importers and end-users of goods that are currently suffering from supply chain disruptions.
Continue Reading Duty Suspension: An Interim Relief from EU Trade Defense Measures
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.
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.…
On October 30, 2021, the United States and the European Union (“EU”) reached an agreement to replace the tariffs imposed under Section 232 of the Trade Expansion Act of 1962 (“Section 232”) on EU imports of steel and aluminum with a tariff-rate quota (“TRQ”) that is scheduled to take effect on January 1, 2022. The deal allows a certain volume of EU steel and aluminum to enter the United States each year without the application of Section 232 tariffs. Imports over that volume will be subject to Section 232 tariffs, which are currently 25 percent for steel imports, and 10 percent for aluminum imports.
According to details released by the Department of Commerce (“Commerce”), the TRQ is based on historical import values and will be allocated by product and by EU Member State. For steel, the TRQ will be broken down into 54 product categories, with the total annual amount set at 3.3 million metric tons per year, starting in 2022. The annual amount for the aluminum TRQ will be 18,000 metric tons for unwrought aluminum and 366,000 metric tons for semi-finished (wrought) aluminum. The quota levels for unwrought aluminum will be subdivided into two product categories, and the quota levels for semi-finished aluminum will be subdivided into fourteen product categories. The United States will conduct annual reviews to adjust the steel TRQ amount based on US demand using data from the World Steel Association, but at this point there is no similar provision to adjust the levels of the aluminum TRQ.…