Hello from Brussels. As of last night the US has a new trade representative- designate, Katherine Tai, the current chief trade counsel to the Democrats on the House of Representatives ways and means committee. Formerly in USTR’s office of China trade enforcement, she is fluent in Mandarin and by all counts smart and easy to get on with. A break with the abrasive Robert Lighthizer machismo, for sure. Also, note, a technocrat rather than a politician.
In other news, President-elect Joe Biden has signalled very clearly he doesn’t want a load of grand new trade agreements: he wants relentless enforcement, particularly against China, in association with allies.
If that means no more pretending that micro-deals about lobster tariffs constitute a new era for transatlantic trade, we’re all for it. In other news, after another Boris Johnson-Ursula von der Leyen meeting last night, Sunday is now the final deadline for a UK-EU trade deal, honestly it is, even more final than the last final deadline, which was pretty final in itself. As the late British author Douglas Adams said: “I love deadlines. I love the whooshing noise they make as they go by.”
Today’s main piece focuses on an EU initiative to turn multinational companies into a global squad of employment and environmental inspectors, more or less, while Tall Tales of Trade is about the UK pretending that it didn’t comprehensively give way on the Brexit question of trade across the Irish Sea.
Brussels to corporations: clean up your supply chains
It’s an awkward time for Brussels to be chuntering on about exporting its values around the world through trade: as my colleagues describe, the EU has enough trouble getting them to Hungary and Poland.
Still, the EU institutions and particularly the European Parliament are insistent that trade should advance human rights, in particular labour standards, and protect the environment. It’s fair to say the Brussels old guard, particularly in the trade directorate, doesn’t instinctively embrace this idea. The standard view there is that sanctionable labour and environmental standards make it harder to agree trade deals (see Mercosur), punish developing country producers for what their government is doing and provoke accusations of neocolonialism from said authorities.
Brussels has a new route to try. As well as going through trade deals, the EU is looking at making multinationals responsible for human rights — and perhaps environmental violations — throughout their supply chains. This turns the issue from a trade thing into a due diligence corporate governance thing and puts it into the enthusiastic hands of Didier Reynders, the Belgian justice commissioner, who is super-keen.
Similar laws already exist elsewhere. On top of existing international agreements about criminal sanctions on bribery abroad, the EU has sectoral regulations on conflict minerals and illegally harvested timber, and voluntary initiatives with the textile and garment industries.
Some member states including France (human rights generally) and the Netherlands (child labour) have introduced their own due diligence laws, though there are questions about fairness and effectiveness. In fact, it’s partly the domestic grumbling they have encountered that has provoked them (particularly the Dutch) to push the idea at an EU level. Dutch companies, reasonably enough, have pointed out that if a multinational sited in one country is obliged to monitor and enforce labour standards on pain of hefty fines, it can be undercut by another in a less fastidious jurisdiction.
At an EU level, assuming they will be compulsory, the rules could be implemented by expanding existing corporate reporting requirements. More excitingly, the EU could create mandatory due diligence as a legal standard of care for companies to “identify, prevent, mitigate and account for actual or potential human rights and environmental impacts”, with serious fines for violation.
It’s not an unambiguously productive proposal. Going down the supply chain rather than the trade deal route can still have the same adverse side effect of taking production and jobs away from developing countries. And unlike labour standards in trade deals, it will apply only to those parts of the economy where western companies are operating or sourcing, possibly creating islands of well-treated workers in seas of oppression and pollution.
On the plus side — as one of Trade Secrets’ favourite members of the European Parliament, the German Green Reinhard Bütikofer, says — a rule would give European companies political cover abroad. “Some companies have said to me that rather than imposing standards on their Chinese suppliers themselves they would much rather be able to go to them and say: this is the law, we have to obey it,” he told us. Bütikofer is a sharp critic of Volkswagen for producing cars in China’s Xinjiang province where many Uighurs live. A due diligence law would also allow European companies to benchmark their supply chain monitoring against others, he says.
So where is this issue going? Last week the member states, guided by the German presidency, called on the commission to design a solid legal framework for corporate due diligence. Getting all the member states on side for the final version will be trickier and could take years. Germany itself, the EU’s manufacturing superpower, is fiercely debating the idea of creating its own law, with ministers openly at odds. Bütikofer says the German government should break the impasse by seeing a domestic law simply as a transition to an EU-wide version.
The due diligence idea does look like it has legs, though how far they stretch remains to be seen. One group of people who may be privately relieved are some of the Brussels trade folks, happy that someone else is sharing the burden of trying to affect what European producers thousands of miles away are doing to their workers and the forests. Running a hypocritical neocolonialist enterprise gets lonely sometimes: it’s nice to have some company.
The UK economic recovery almost stalled in October as the services sector was hit by Covid-19 restrictions before the full November lockdown in England and increased Brexit uncertainty. Output grew 0.4 per cent in October compared with the previous month, down from 1.1 per cent in September and the lowest rate since May, data from the Office for National Statistics showed on Thursday.
Tall tales of trade
Soon we won’t have the Brexit process to kick around any more, or not at the same intensity, so let’s make the most of pointing out the tall tales while we can.
This week, separately to the trade deal talks, the UK and EU agreed how the Brexit withdrawal agreement will apply to Northern Ireland, which will remain inside the UK while also applying the EU customs code. A package of trusted trader schemes and temporary waivers on inspections was enough for the UK to withdraw its childish threats to override the agreement and break international law. But let’s be clear: the Johnson government’s promise that trade will flow as freely as before across the Irish Sea between Northern Ireland and Great Britain simply cannot be kept.
Companies will need health certificates for animal and plant products, import declarations and other bureaucracy. The UK claimed last year to have persuaded the EU to back away from its position on simultaneously keeping the Irish land border open and protecting the integrity of the single market by, if necessary, requiring some border protections down the Irish Sea. That was nonsense. It was a UK capitulation, as this week’s discussions are making clear. Cover it up with whatever Potemkin customs arrangement you want: the withdrawal agreement introduces border frictions between Northern Ireland and Great Britain where they didn’t exist before.
China has halted visa-free tourist travel for US diplomats to Hong Kong in retaliation for sanctions by Washington. The travel curbs will also apply to the autonomous region of Macau, the former Portuguese colony neighbouring Hong Kong that is a gambling centre with significant investment from US casino groups.
Liz Truss, the UK’s international trade secretary, and her Singapore counterpart Chan Chun Sing on Thursday signed a free trade agreement in the city state. The new deal covered more than £17bn of trade in goods and services and largely replicated the existing EU-Singapore FTA, the governments said in a joint statement.
The pandemic has left some of the world’s biggest shipping lines facing mounting backlogs and delays, straining international supply chains and threatening to disrupt global trade. Operators say the container shipping industry is under severe pressure due to the combined impact of staff illness, quarantining and social distancing, along with soaring consumer demand and disruption to factory output caused by lockdowns.
The best trade stories from Nikkei Asia
The Chinese economy is likely to surpass that of the US in either 2028 or 2029 as China emerges from the pandemic in a position of strength, shows a study by the Japan Center for Economic Research.
Toyota plans to debut electric vehicles next year with its new solid-state battery, which cuts charging time by two-thirds and positions it for competition against Volkswagen and Chinese carmakers.
Berlin under fire over attempt to interfere with Wirecard inquiry
Germany’s finance ministry has come under fire over an attempt to secretly interfere with the questioning of a key witness during a parliamentary inquiry into Wirecard, a potential breach of parliamentary etiquette.
The collapse of the German payments company last summer sent shockwaves through Germany’s financial and political elite. A parliamentary inquiry has exposed multiple regulatory failures and led to the departure of the heads of three supervisory agencies.
Days ahead of Friday’s final parliamentary debate on the committee’s final report, the finance ministry disclosed that one of its senior officials tried to intervene in the inquiry’s work in the run-up to the questioning of Munich chief prosecutor Hildegard Bäumler-Hösl, a key witness.
The government revealed this in a written answer to a question raised by Fabio De Masi, an MP for the hard-left Die Linke party, which was seen by the Financial Times.
The ministerial official was not named, but can be identified by the description of his role, as Reinhard Wolpers, the head of the subdivision financial market stability. Wolpers is one of three finance ministry employees who are members of BaFin’s administrative council. The finance ministry declined to comment on his identity.
In the run-up to the questioning of Bäumler-Hösl in January, Wolpers approached BaFin’s then-vice president, Elisabeth Roegele, and asked her to provide questions for Bäumler-Hösl which he then would pass on to MPs.
The government has no constitutional role in the inquiry, which is being pursued by parliament and has powers akin to a court. Moreover, Roegele was also nominated as a witness and had not yet been questioned by MPs at that point. She was forced out of her job by the government alongside President Felix Hufeld in late January.
“Wolpers’ behaviour is a clear violation of rules,” De Masi told the Financial Times, adding that the government official showed a “lack of respect for the Bundestag”.
BaFin and Munich prosecutors are embroiled in a blame game over the controversial 2019 short selling ban which investors regarded as a vote of confidence in the disgraced company. BaFin imposed the ban after receiving information from Munich prosecutors about an allegedly imminent short selling attack against Wirecard.
Several BaFin employees told MPs that Munich prosecutors had stated that the information was highly credible. Bäumler-Hösl denied that and said she just passed it on to BaFin without commenting about its validity.
The short-selling ban is potentially toxic for German finance minister Olaf Scholz, who is the Social Democrats’ candidate for chancellor in September’s federal election.
The finance ministry scolded the watchdog publicly for the short selling ban, saying it was based on poor and insufficient analysis.
The ministry’s response to De Masi disclosed that Wolpers approached Roegele via email and text messages days ahead of Bäumler-Hösl’s testimony. The ministry said Wolpers “acted upon his own, personal initiative and did not co-ordinate with other employees of the finance ministry”. It added that the executive level “at no point” was informed about the behaviour but only became aware of the matter because of De Masi’s inquiry.
“The communication of [our] employee with Ms Roegele was eventually without a result, as Ms Roegele did not submit such suggestions for questions,” the ministry said, adding that “no information” was passed on to members of the inquiry committee from the ministry.
Lisa Paus, a Green MP, said that the “authority of the finance ministry” was misused for the political interest of the Social Democrats. “That’s an absolute no-go.”
Florian Toncar, an MP for the pro-business Free Democrats, said that it would be “very surprising” if Wolpers’ actions were “not approved or even requested by the ministry’s senior level”.
Jens Zimmermann, SPD representative on the inquiry, said he was unable to comment on internal procedures at the ministry “as I don’t have any insights [into them]”, adding that his only contact was with the ministry’s official representatives in the committee. “I did not receive any suggestions for potential questions to Ms Bäumler-Hösl,” Zimmermann said.
Wolpers and Roegele did not respond to FT requests for comment. Munich prosecutors declined to comment.
UK exporters get more than £12bn in government financial aid
UK exporters have been given more than £12bn in state financial support to keep Britain trading with the rest of the world through Brexit and the pandemic.
UK Export Finance, the government’s export credit agency, provided British businesses with the highest level of financial support in 30 years in the 12 months to the end of March, according to its annual report published on Wednesday. This is almost treble the amount from the previous financial year, to help exports to 77 countries.
The agency aims to support viable UK exports with loan guarantees, insurance and direct lending to help them win, fulfil and get paid for international business where there are gaps in private sector provision.
UKEF provided more than £7bn in support to companies disrupted by the pandemic, such as Rolls-Royce, Ford, easyJet and British Airways, with a mixture of trade guarantees and insurance to encourage private sector lending to exporters.
It also helped exporters facing Brexit risks, for example providing a £480m guarantee on a £600m commercial loan in March 2021 after a carmaker committed operations to the UK.
UK exporters, especially smaller businesses, have complained about extensive red tape and costs arising from trading with the EU after Brexit.
Many have also warned that the trade deals struck by the government have yielded little benefit so far, instead causing them to rejig operations and move production and distribution overseas.
“We are opening up the world’s fastest-growing markets through the trade deals we are negotiating so that the UK can recover as quickly as possible from the pandemic,” said minister for exports Graham Stuart.
Support through finance and guarantees was given to 549 companies, more than double the number helped over the previous two years.
The agency also underwrote its largest ever civil infrastructure project, with £1.7bn in guarantees to build two monorail lines in Cairo and provide the trains, the first such exports in more than 12 years.
The export agency is now planning to increase its coverage of businesses focused on zero carbon initiatives.
Stuart will say on Wednesday that UKEF will create a renewables, energy and carbon management team to underwrite activity across sectors such as wind power, solar, green hydrogen, grid resilience and decommissioning. UKEF has also committed to ending support for new fossil fuel projects overseas.
Last year, UKEF launched a new scheme to encourage trade after Brexit and for small businesses to take advantage of new trade agreements.
Under this, exporters could apply for larger loans from the UK’s five high street banks backed by an 80 per cent guarantee that can be used both to cover costs linked to exports and also to scale up business operations.
Marcus Dolman, co-chairman of the British Exporters’ Association, said that such new products were “already proving their value to UK exporters and to supporting UK jobs”.
What unites and divides Germany’s potential coalition partners
Guten Morgen and welcome to Europe Express.
Germany’s election season is kicking into gear and both Angela Merkel’s centre-right CDU/CSU and the up-and-coming Greens have published their election manifestos. With polls indicating the two parties could end up bedfellows in the first post-Merkel government, we compare their Europe-related policies.
The Uefa Euro 2020 football championship is in full swing and gripping fans across the continent. But we explore a darker reality that has spilled out in stadiums and pitches: culture wars.
In Luxembourg, EU affairs ministers meet today to prepare for a summit, hear the latest on EU-Swiss relations and discuss the rule of law in Hungary and Poland.
This article is an on-site version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday morning
Germany’s ruling Christian Democratic Union and its Bavarian sister party, the Christian Social Union, have laid out their joint election manifesto after the Greens published theirs in past weeks. It is well worth looking at what unites and divides the potential government allies in the post-Merkel era.
In brief, the CDU/CSU wants to return to how things were before the coronavirus pandemic, especially on fiscal rules and the sacrosanct schwarze Null (a balanced budget). They seem lukewarm on disruptive digital and green policies and made a libertarian push for a retreat of the state from many areas of society under the motto: “throwing money at problems isn’t always the best way to solve them”.
Meanwhile, the Greens have put forward a transformational plan. Their ambition is to turn Germany into a carbon-neutral economy in the next 20 years. Here are three areas to watch closely:
Debt and spending
The CDU/CSU have insisted that once the pandemic is over, so should be any relaxation of fiscal rules. They support the EU’s unprecedented, mutual-debt-fuelled €800bn recovery plan, but say it should be a one-off. They oppose consistent debt mutualisation across the bloc. (Here is Armin Laschet’s take in an interview with the FT)
The Greens are less dogmatic about what other EU nations should do in terms of borrowing. They even suggest a relaxation of Germany’s debt brake to allow public investment in schools and infrastructure, to be financed with more debt.
The CDU/CSU have embraced the goal of CO2 neutrality by 2045 and a 65 per cent cut in carbon emissions by 2030. But there are caveats for some industries and climate activists have pointed to inconsistencies and omissions in the conservative parties’ manifesto — notably their vague commitments on a “stable, fair and transparent” price for carbon.
The Greens are seeking to raise the carbon price to up to €60 per tonne in 2023, along with subsidies and incentives to cushion the social impact of a greener economy.
Europe and foreign policy
The CDU/CSU were more dovish on China and Russia and they failed to mention the controversial Nord Stream 2 gas pipeline. The Greens were more hawkish and maintained their opposition to the pipeline for environmental and geopolitical reasons (they worry about circumventing Ukraine, depriving it of transit revenues, and increasing energy dependence on Russia).
Both the CDU/CSU and the Greens favour majority voting in EU foreign policy, replacing the current model of unanimity. The Greens would also abolish the need for unanimous EU decision-making on taxation.
The September 26 election result will determine how much of these manifestos get translated into actual policy — and how much one or both political groups will have to compromise.
Chart du jour: Europe’s Covid bill
Public debt in the eurozone rose 14.1 per cent in 2020 compared with the previous year, the biggest leap in two decades, driven by the pandemic. Greece and Spain have recorded the biggest single increase in debt loads, while Ireland only recorded a marginal increase.
Beautiful game, uglier realities
International football’s biennial jamborees usually offer a few weeks of summer escapism for avid fans and newbies alike, writes Mehreen Khan in Brussels.
But this year’s European championships have become an extension of the psychodramas and culture wars that dominate political life on the continent.
The list of controversies runs long (and we are only 11 days in). Last month, France’s far-right kicked off a movement to boycott Les Bleus over a rap song. In England, the national team has defied criticism in the tabloid press by continuing to take the knee in support of Black Lives Matter, despite jeering from some of their own fans.
Further east, Ukraine’s football association was ordered by governing body Uefa to partly modify its kit design. Russia had complained that the jersey included a map of Crimea, which Moscow annexed in 2014.
Greece has also complained to Uefa about neighbouring North Macedonia using the acronym “MKD”. The Greeks (who didn’t qualify for the tournament) say the abbreviation violates the terms of the 2018 agreement under which Macedonia changed its name to North Macedonia.
The latest conflagration came this weekend, when German captain and goalkeeper Manuel Neuer became the subject of an investigation by Uefa for wearing a rainbow armband in support of LGBT+ rights. News of the probe prompted senior EU officials to express support for the player.
The inquiry has since been dropped by the governing body, which concluded that the armband did not constitute a breach of its rules prohibiting the display of “political symbols”.
Neuer’s Germany faces off tomorrow against Hungary, where LGBT+ rights have come under political assault from Viktor Orban’s ultranationalist government. Munich’s Allianz arena is preparing to welcome the visitors by lighting up the stadium in rainbow colours.
Separately, Uefa on Sunday said it was investigating “potential discriminatory incidents” during Hungary’s two opening matches in Budapest, where TV images captured homophobic banners among the 55,000-strong crowd. Monkey chants were also reportedly directed at French players on Saturday.
Brussels risks getting ensnared in the politicisation of the world’s most popular game. EU diplomats have told Europe Express that the incoming Slovenian presidency, led by rightwing prime minister Janez Jansa, wants leaders to sign off on summit conclusions this week on the governance of sport.
Under the banner of the European Way of Life, Jansa is pushing for leaders to agree language “reaffirming the uniqueness of the organisation of sport in Europe”. The request has baffled diplomats, particularly as the EU has little legal authority over sport.
Slovenian diplomats said the push was needed to prevent schisms such as the scuppered European Super League that rocked world football earlier this year. Jansa also has a long-running grudge against his compatriot and president of Uefa Aleksander Ceferin, often taking to Twitter to send pointed jibes at football’s governing chief.
Between all the spats and controversies, viewers could be forgiven for forgetting that some football is also going on.
In the dock
Poland and Hungary will be in the spotlight during ministerial meetings in Luxembourg today as member state ministers discuss Article 7 procedures against the two countries, writes Sam Fleming in Brussels.
These procedures allow the European Commission, European parliament or member states to take action against countries for serious breaches of the rule of law under threat of punishments such as the suspension of EU voting rights.
The commission triggered the process against Poland in 2017, while the parliament launched it against Hungary the following year.
In Poland, incursions into judicial independence have continued, as have apparent threats to the primacy of EU law. In Hungary, there are mounting concerns about the judiciary, anti-corruption frameworks, media pluralism and human rights. Last week, Hungary passed an anti-LGBT+ law that sparked criticism from rights groups. The commission said it would look into whether the legislation breached EU laws.
Nevertheless, the two countries can shield each other from punishments under the Article 7 regime by wielding their vetoes. The question ahead is whether the commission can obtain better results by deploying powers agreed last year to withhold EU funds over breaches of vital principles.
Commission vice-president Vera Jourova is due to address the ministers in the General Affairs Council, setting out the state of play in both countries.
“The last hearing on Poland took place in December 2018 and on Hungary in December 2019, and many things happened since then,” she told Europe Express. “Unfortunately most of them continued to raise our concerns.”
What to watch today
EU affairs ministers meet in Luxembourg
Germany’s chancellor Angela Merkel receives European Commission president Ursula von der Leyen in Berlin
United front: French politicians from left to right have persuaded a Green candidate to withdraw from the second round of regional elections on Sunday. The move is aimed at ensuring that Marine Le Pen’s far-right Rassemblement National does not take control of the southern Provence-Alpes-Côte d’Azur region.
Belarus sanctions: EU foreign ministers approved sanctions against a further 86 individuals and organisations in Belarus and set their sights on industries including finance, potash and petroleum products to put pressure on President Alexander Lukashenko’s regime.
Government collapse: In a first for Sweden, the country’s prime minister Stefan Lofven has lost a no-confidence vote in his government. The vote, engineered by rightwing opposition party Sweden Democrats, means Lofven has a week to call an election or build a new ruling coalition.
German tech offensive: Germany’s Federal Cartel Office added Apple to the Big Tech companies in its crosshairs, launching a probe into whether the iPhone maker has established market dominance through its “digital ecosystem”.
St Schuman: “Founding father” of the EU Robert Schuman may soon become a saint. The former French prime minister was given the title of “venerable” in a decree by Pope Francis over the weekend, which is one of the steps that could lead to sainthood.
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