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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

2022 is shaping up to be a critical year for the Biden Administration regarding U.S. international trade policy.  In 2021, the Biden Administration made headway in resolving some of the challenges with United States’ allies that arose during the last Administration, and trying to build bridges in important regions that had perhaps had been neglected.  But in a number of other critical areas, and arguably in the most significant areas, the Biden Administration made little tangible progress over the past year.  The discussion below offers a look back at the key developments in 2021 with respect to U.S. trade relations with the EU, China, the rest of Asia and North America, and a look ahead at what could come in 2022.
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Continue Reading The US International Trade Agenda: A Look Back, A Look Ahead

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

On April 22, 2021, President Biden will host a virtual summit with 40 world leaders to discuss the global climate change crisis. The “Leaders Summit on Climate” is intended to catalyze more ambitious emissions-reduction efforts by the world’s major economies. The United States intends to lead by example with a new 2030 emissions target as its Nationally Determined Contribution (NDC) under the Paris Agreement.

The decision to convene a summit on climate change is one of many signals sent by the Biden Administration over the past few months that the U.S. approach to climate change is shifting dramatically, both at home and abroad. The Biden Administration has made clear that climate change must be part of decision-making across the entire government, including with respect to trade policy. Stronger enforcement of the environmental standards in U.S. FTAs, the integration of climate change into government procurement decisions, and strengthening U.S. supply chains for electric vehicles are all part of this shift. The United States is also pushing climate cooperation bilaterally. It recently entered into a “Competitiveness and Resilience (CoRe) Partnership” with Japan that focuses on the development and deployment of clean-energy technologies. The United States and China also recently released a Joint Statement “Addressing the Climate Crisis” that acknowledges their shared commitment to implementing the Paris Agreement.

One of the trade-related climate policies currently under consideration by the United States is “carbon border adjustments”. President Biden included carbon adjustments in his campaign plan and USTR referenced the possibility of imposing “carbon border adjustments” in its recently announced 2021 Trade Policy Agenda. Carbon border adjustments charge a fee on imported goods based on the carbon intensity of their production process in order to reduce the incentive to relocate carbon-intensive production to jurisdictions that have not yet addressed the need for carbon emitters to internalize emission costs, commonly referred to as “carbon leakage”.  They also serve to level the playing field for domestic industries that would otherwise face competition from cheaper, more carbon-intensive imports. By raising costs on imports, carbon adjustments may also incentivize other countries to adopt similar carbon pricing policies. Carbon adjustments may also rebate the cost of a domestic carbon fee on exports to help them compete in international markets.…

Continue Reading Trade and Climate in the Lead Up to President Biden’s Climate Summit