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161. From SMEs to Unicorns: What Role for Trade, Standards and New Tech?

Author:
Lucian Cernat
Publication Date:
09-2021
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The global economy has been shaped by important, disruptive technological changes in recent years. Many of these technologies have been instrumental in our global COVID-19 response and will become the new normal. Some of these technologies have been introduced by small firms, which grew spectacularly to become ‘unicorns’, with very high market value and global reach, setting new technological standards in their sectors. The future competitiveness of the EU economy depends on the interplay between firm size, technological progress and ability to use the opportunities offered by global markets. This paper looks at the role of trade policy in influencing this complex interplay and offers a few tentative conclusions and recommendations.
Topic:
Science and Technology, European Union, Economy, Trade, and COVID-19
Political Geography:
Europe and Global Focus

162. Europe’s Carbon Border Adjustment Mechanism: Time to Go Back to the Drawing Board

Author:
Fredrik Erixon
Publication Date:
11-2021
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This Policy Brief takes stock of the global and European trade and carbon-emission effects from CBAM. It argues that the current design of the CBAM is not good enough and, ultimately, that there are risks that it will dent the positive effects on global carbon emissions that come from a lower cap on carbon emissions in Europe. These effects will happen through trade and the reallocation of production – and from retaliatory responses from countries that will be negatively affected by the CBAM. This Policy Brief provides recommendations on what the EU could do to improve the CBAM. First, it should respond better to concerns about WTO compatibility. No one knows if CBAM would stand up in a WTO dispute, or if the issue of WTO compatibility is of relevance at all. What we do know, however, is that the EU is going a bit off-piste with CBAM, and it knows it. It’s better to address these issues directly than to pretend that they don’t exist. It could, for instance, pre-empt problems by offering compensatory concessions for affected countries. Moreover, the revenues raised by CBAM fees could be paid out to the origin country for the exports. There will be a price for the EU to pay and the more front-footed it is, the more choices it will have in deciding what political currency to use for the payment. Second, the EU should address development problems that will arise from CBAM. The genie is already out of the bottle since development concerns have been raised by the European Parliament and EU member states. Something will have to be done to avoid that CBAM makes it harder for poor countries to improve their welfare. Third, the EU should provide workable ideas for how CBAM could be anchored in trade and climate agreements. If more economies go off-piste in their climate policies (e.g. in subsidies and procurement), the EU is going to be harmed. Hence, the EU has a strong interest to establish an example and provide international rules for how other countries should act in the future when they take measures that ‘beggar-thy-neighbour’. Fourth, the EU should provide a realistic assessment of what retaliatory strategies that other countries will use against the EU, and get a much better understanding of the dynamic or second-order actions that CBAM will prompt. These actions can have a very bad impact on both EU growth and its efforts to decarbonise the economy. It is just decadent to avoid dealing with them pre-emptively. Finally, and more ambitiously, the EU should consider how it can avoid that CBAM (not the ETS) provokes carbon leakage through both imports and exports. In its current shape, the CBAM provides an incentive to move imports up the value-chain and reallocate imports to goods with embodied carbon. Moreover, the CBAM will reduce the external competitiveness of EU exports, leading to a reduction in foreign sales. Both effects will move the global production of CBAM goods to countries with lower carbon costs and higher carbon intensity in the production.
Topic:
Climate Change, European Union, Trade, Carbon Emissions, and WTO
Political Geography:
Europe

163. EU and Mercosur in the Twenty-First Century: Taking Stock of the Economic and Cultural Ties

Author:
Oscar Guinea and Vanika Sharma
Publication Date:
12-2021
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This policy brief examines the latest developments in the EU-Mercosur economic relationship and outlines the existing non-economic relationship in order to contextualise the EU-Mercosur Association Agreement and its potential for strengthening common bonds between both regions. Trade between the EU and Mercosur is significant, with both regions holding an important place as large markets for each other’s exports. Currently, trade between the two is dominated by trade in machinery, agriculture, and chemicals. As relevant as these traditional sectors are, their trade is also increasingly supported by trade in services, which unlike trade in traditional agricultural products such as soya, beef and sugar that are either stable or declining, is rapidly increasing. In addition to trade, EU and Mercosur economic bonds are also supported by investments. EU member states hold a large stock of investment in the Mercosur countries while investment flows from Mercosur into the EU are also increasing. This increase has been particularly marked in high-tech sectors like R&D and computer software, emphasising again the changing economic relationship between the EU and Mercosur from traditional to advanced sectors. These trade and investment dynamics are complemented by changes in the EU-Mercosur supply chains. Over the past ten years, the effects one region has on the competitiveness of the other have increased and will continue to do so into the future. The EU is the largest contributor to Mercosur exports, meanwhile Mercosur countries provide the biggest value-added to EU agricultural products. A primary underlying trend found across all dimensions of the EU-Mercosur economic relationship has been the rise of China. In trade, it takes two to tango, and since 2015, it has been China, rather than the EU, that has risen to become Mercosur’s main trading partner. Over the past nine years, the amount of Chinese value-added embedded in Mercosur exports has more than tripled. Moreover, China has ramped up its investment into Mercosur countries, while also receiving increased investments from Mercosur. So, although the EU-Mercosur relationship is changing and bonds have deepened, the EU faces constant competition from China in its relationship with Mercosur. Despite these changes, the EU and Mercosur share a long history of close non-economic relationships. Both have been at the receiving end of large migration flows from each other. This has led to the development of kindred cultures, shared languages, and strong non-economic ties. These similarities have long supported the establishment of deep economic bonds through meaningful collaborations in science and technology, ease of doing business, and provisions for working professionals through various cooperation agreements. However, with the rapidly changing nature of their commercial relationship, these cultural links might not be enough to sustain the economic relationship between the two. These ties need to be complemented by the ratification of the EU-Mercosur Association Agreement to nurture their changing relationship.
Topic:
European Union, Economy, Trade, South American Union (UNASUR), and Mercosur
Political Geography:
Europe and South America

164. The missing anchor: Why the EU should join the CPTPP

Author:
Peter Draper and Naoise McDonagh
Publication Date:
10-2021
Content Type:
Policy Brief
Institution:
Lowy Institute for International Policy
Abstract:
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a twenty-first century trade accord that aims to secure a level playing field and rules-based trade environment in the Indo-Pacific. Yet in the absence of the United States, it risks underachieving on this goal. The European Union (EU) is the only global actor with the trade preferences and requisite economic heft to provide a similar anchoring function for market-orientated trade as was envisioned for the United States in the CPTPP. An EU accession bid to the CPTPP would require overcoming major hurdles and reservations, not least in Brussels. The gains in surmounting them, however, would be considerable. Any EU accession process should avoid jeopardising the possibility of a return of the United States to the multilateral trade agreement. An equivalence regime for regulations where CPTPP members are not in alignment with EU standards could in principle open the possibility of the EU and the United States eventually co-habiting within the CPTPP, however remote or delayed the prospect. Australia should use its status as a founding CPTPP member to advocate for EU accession to the trade agreement. Engaging Europe on the future of the multilateral trade architecture in Asia presents a key area of potential convergence between Brussels and Canberra, following a setback in strategic ties caused by the Australian cancellation of a French-led submarine contract.
Topic:
European Union, Partnerships, Trans-Pacific Partnership, and Trade
Political Geography:
Europe, United States of America, and Indo-Pacific

165. Lithuania, China and EU lawfare to counter economic coercion

Author:
Steven Blockmans
Publication Date:
12-2021
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Without any formal notification, China recently declined customs clearances for shipments from Lithuanian firms in the pharmaceutical, electronics, and food sectors, and warned multinationals of secondary sanctions if they did not sever their ties with Lithuania. These covert actions were taken in response to Lithuania’s invitation to Taiwan, which the People’s Republic of China (PRC) claims as its own territory, to open a ‘representative office’ in Vilnius. No other country has ever found itself at the receiving end of such intense and politically motivated Chinese economic pressure. These actions on the part of the PRC are politically explosive because it raises serious questions about the international conduct of the Chinese Communist Party (CCP). If it can simply wipe a country off its trade book, a state belonging to the EU’s customs territory no less, then what does it mean to be a member of the WTO, or a signatory to any other number of international agreements? And, given the lamentable state the WTO is in: could the European Commission’s newly proposed anti-coercion instrument bring any solace to Lithuania and the EU?
Topic:
Law, European Union, Economy, Trade, and Coercion
Political Geography:
China, Europe, Asia, and Lithuania

166. The day after: The conflicting implications of Brexit

Author:
Al Jazeera Center for Studies
Publication Date:
01-2021
Content Type:
Policy Brief
Institution:
Al Jazeera Center for Studies
Abstract:
Britain has effectively left the EU after long and tiresome negotiations. But the implications of Brexit have not transpired completely as the aftershocks may be felt within Britain itself in the form of increased desire for independence in Scotland; and London may fail to establish trade agreements that can compensate for its exit from the EU.
Topic:
European Union, Economy, Brexit, and Trade
Political Geography:
United Kingdom, Europe, and Scotland

167. China in Italy: Risk Assessment and Preventive Solutions

Author:
Beatrice Gallelli and Lorenzo Mariani
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Italy’s 2019 decision to sign a Memorandum of Understanding with China in support of the Belt and Road Initiative sparked a heated debate at home and abroad. The possibility of Italy upgrading its trade and investment relations with China through the shortcut of a political endorsement of President Xi Jinping’s flagship foreign-policy initiative was framed as either a heaven-sent opportunity or a serious strategic threat. Two years on, most of the concerns pointed out in the debate, especially regarding infrastructures, have proven unsubstantiated (although the economic opportunities for which the Italian Government wished have also failed to materialise). However, cooperation initiatives between Italian and Chinese entities in sectors often overlooked in the mainstream debate, such as media and academic partnerships, do present risks. The creation of an interagency China Information and Coordination Unit would help to prevent – or, at least, to minimise – such risks. Paper prepared in the framework of the IAI project “When Italy Embraces the BRI”.
Topic:
Foreign Policy, Education, Science and Technology, Mass Media, Foreign Direct Investment, and Trade
Political Geography:
China, Europe, Asia, and Italy

168. The Belt and Road Initiative in Italy: The Ports of Genoa and Trieste

Author:
Francesca Ghiretti
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
In March 2019, Italy signed a Memorandum of Understanding (MoU) with the People’s Republic of China (PRC) in support of PRC President Xi Jinping’s flagship infrastructure and connectivity project, the Belt and Road Initiative. The MoU was accompanied by a series of commercial agreements, including two between the ports of Genoa and Trieste and the state-owned enterprise China Communications Construction Company (CCCC). The European Union and the United States expressed concerns about the agreements as they feared that CCCC would eventually obtain a controlling share of the ports, not unlike that recently secured by the China Ocean Shipping Company (COSCO) with Greece’s Port of Piraeus. However, existing legal constraints, an open international and national debate, and the vague nature of the agreements concerned have so far kept these fears from materialising. Paper prepared in the framework of the IAI project “When Italy embraces the BRI”.
Topic:
Foreign Policy, Infrastructure, Belt and Road Initiative (BRI), and Trade
Political Geography:
China, Europe, Asia, and Italy

169. The Franco-Italian relationship on the eve of the Quirinal Treaty: between asymmetry and proximity

Author:
Gilles Gressani
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
Robert Schuman Foundation (RSF)
Abstract:
Leonardo da Vinci, Mazarin, Dalida ... Since the Renaissance, and with astonishing continuity, the Franco-Italian connection has become a given in European history. The two States are shaped by similar political models and have comparable economic structures. They have experienced similar social crises, trajectories and a homogeneous sense of decline[1]. France, Italy's leading investor and third largest country for the establishment of Italian subsidiaries, is Italy's second largest trading partner and Italy is France's second largest trading partner: in 2019, before the Covid crisis, the volume of trade between the two countries was close to €90 billion. The interconnection and proximity between a significant share of the two populations is expressed by language, a certain lifestyle, the relationship to heritage, a common culture: Latin, Mediterranean, European. Reflecting on the relations between these two areas since the 17th century, three historians have recently taken up this old idea: France and Italy are "two sister nations" whose history is increasingly "intertwined[2]". This proximity, which seems so obvious, brings a paradox to the fore. Can we really say that within the framework of European integration there is a FrancoItalian dimension, in the same way as there is one that is Franco-German?
Topic:
Bilateral Relations, Regional Integration, Trade, and Asymmetric Relations
Political Geography:
Europe, France, and Italy

170. UK Economic Diplomacy in the 21st Century: The LSE Economic Diplomacy Commission Final Report

Author:
LSE Economic Diplomacy Commission
Publication Date:
02-2021
Content Type:
Special Report
Institution:
LSE IDEAS
Abstract:
The LSE Economic Diplomacy Commission was convened in 2019 to establish a strategic direction for a new age of foreign economic policy, to understand the domestic ramifications of changes to the UK’s trade agenda, and to present recommendations that may best advance the UK’s priorities at home and abroad. The aim of the Report is to position the UK optimally in a changed 21st century global economy while maintaining the UK’s support for an open, multilateral trade and rules-based international system. The Report proposes a refined economic diplomacy framework that seeks to balance commercial openness with strategic domestic and foreign policy aims, broadly defined.
Topic:
Foreign Policy, Diplomacy, Economics, and Trade
Political Geography:
United Kingdom and Europe