Insight
EU efforts to level the playing field are not risk-free by Sam Lowe 16 July
The EU believes other countries are taking advantage of its relative economic openness. However, unilateral action to level the playing field risks provoking retaliation and the EU will need to tread carefully. The phrase ‘level playing field’ has become a permanent fixture of European trade policy debates. While most commonly associated with the stuttering trade talks with the UK, the EU’s desire to make free trade conditional on constraints on deregulation and subsidies is part of a broader policy platform. Policy-makers in Brussels and many capitals increasingly believe that the EU has been naive in its commercial dealings with the rest of the world. They fear that other countries have benefited from the EU’s open markets while failing to offer equivalent levels of access in return and actively engaging in anti-competitive practices designed to unfairly undercut European producers. With a particular eye on China’s actions, the European Commission has proposed new measures that would allow the EU to more readily intervene in the event of suspected foul play. These include the ability to investigate and sanction EU-based companies that benefit from foreign state subsidies and the resurfacing of the International Procurement Instrument (IPI), a proposal that would penalise companies from countries that do not offer reciprocal access when they bid for EU procurement contracts. The EU’s proposed border carbon adjustment mechanism can also be viewed in this light, in that it is designed to penalise goods imported from countries with a lower carbon price than the EU. But unilateral EU action to level the playing field runs the risk of provoking retaliation. Fighting foreign subsidies The Commission has re-evaluated its trade and investment defences as concern has grown in Europe about the World Trade Organisation’s (WTO) inability to prevent China subsidising its companies. While the WTO Agreement on Subsidies and Countervailing Measures (known as the SCM Agreement) allows for additional tariffs to be placed on imported goods that benefit from trade distorting subsidies, the WTO regime only covers direct government subsidies, and not off-government-balance-sheet interventions such as state-directed Chinese banks funnelling money into Chinese companies. Additionally, the WTO anti-subsidy regime does not extend to services, procurement or companies operating within the EU. CER INSIGHT: EU efforts to level the playing field are not risk-free 16 July 2020
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