Original Special Correspondent Qian Wenjie
2021 is not a quiet year for China-EU relations. After experiencing the "big year" of China-EU relations in 2020, entering 2021, the development of China-EU relations has produced great uncertainty and is facing tests.
In 2020, China and the EU are already each other's largest trading partners, and every move of the two major economies will have a great impact on the bilateral and even multilateral economic and trade environment, so where will the ever-changing China-EU relations go?
The reporter interviewed Tang Xiaoyi, a partner at Dentons Law Firm in the European Union. Mr. Tang Xiaoyi has been working on Eu-China trade remedies in Brussels for many years and has a deep understanding of the government and industry of EU countries.
Basic information on European trade remedies
International Market: China and the EU are the world's most important economies, but in recent years, it seems that trade frictions between China and the EU have continued, especially in the form of the EU's frequent trade remedy measures such as anti-dumping and countervailing duties for products originating in China. What is the general situation of the current trade remedies case?
Tang Xiaoyi: The trade relationship between China and the EU is both cooperative and controversial. According to data released by Eurostat, in 2020, China has replaced the United States as the EU's largest trading partner, and bilateral trade in goods has grown against the trend in the new crown epidemic, which is the embodiment of further complementarity in bilateral trade relations.
From a broad perspective, China's main exports to EU countries are industrial and consumer goods, clothing and shoes. The main products that China imports from the EU are machinery and equipment, automobiles, aircraft and chemicals. We have seen that the EU is frequently launching anti-dumping and countervailing duties on imports from China, commonly known as "double reverse" trade remedy investigations. At present, the vast majority of trade remedy measures implemented by the EU are aimed at China. Judging from the product range of investigations launched in recent years, it has gradually changed from relatively low-end products in previous years, such as lighters, binders, fax machines, burning discs, bolt nuts, etc., to products with high technology and high added value. The well-known dispute over photovoltaic products between China and Europe is a typical example, involving more than $20 billion. Since 2020, the EU has continuously launched investigations into China's wind towers, optical cables, aluminum foil, graphite electrodes and other high-tech and high-value-added products, which also shows that the comprehensive grade of China's exports to the EU is constantly improving.
International Market: Which types of products were hurt the most in the EU's anti-dumping investigations?
Tang Xiaoyi: In the anti-dumping investigation launched by the European Union against Chinese products, steel and aluminum products have been the most affected. For steel products, in addition to the traditional "double reverse" investigation, the EU has also taken safeguard measures for global imports of steel products since 2018, that is, the supporting measures of quotas and tariffs, which is mainly a self-protection action launched by the EU against the 232 import restrictions taken by the United States during the Trump presidency. For aluminum products, the products currently subject to EU measures include not only household products such as aluminum foil, but also industrial products such as aluminum extruded materials, aluminum flat materials and aluminum conversion foils.
Overall, the EU's anti-dumping and safeguard measures, and other supporting trade measures, have caused certain obstacles to Chinese enterprises' exports to the EU. Chinese exporters must take EU trade restrictions seriously.
International Market: Mr. Tang, thank you for your introduction to the EU's trade remedy measures under the WTO regime. As far as I know, in December 2019, the term of office of Dr. Zhao Hong, the last justice of the WTO Appellate Body, ended, and the WTO, the world's largest multilateral economic organization, will in fact fall into a standstill.
Tang Xiaoyi: You are quite right. In recent years, the U.S. government has blocked the appointment of new judges by the WTO Appellate Body, resulting in the WTO Appellate Body now being unable to accept new cases, resulting in a de facto shutdown. That would be very harmful to the multilateral trading system. In April 2020, some WTO members, including China and the European Union, established the Provisional Multi-Party Interim Appellate Arbitration Arrangement (MPIA) and successfully established a 10-member arbitrator pool in July 2020. This means that although there is a factual suspension of the WTO Appellate Body, some major WTO members have established a temporary mechanism that can alleviate the crisis caused by the suspension of the Appellate Body to a certain extent.
International Market: We know that the EU-China investment agreement to be negotiated at the end of 2020 is a landmark success in China-EU economic and trade relations, however, the European Parliament has announced the suspension of consideration of the China-EU investment agreement, what does this mean for investment between China and the EU? What do you think of the direction of the agreement?
Tang Xiaoyi: On December 30, 2020, the leaders of China and the EU jointly announced that the two sides will complete the negotiations on the EU-China Investment Agreement as scheduled, and that the two sides will reach a comprehensive, balanced and high-level investment agreement. Overall, the CHINA-EU Investment Agreement is a high-level commitment to market access. China's commitments to EU market access include market access for the automotive industry, traditional and new energy vehicles, as well as market access for the production of medical equipment and chemicals, and further commitments to the opening up of service industries such as finance, international ocean and cloud technology. Since a large part of eu companies' investment in China is concentrated in the automotive industry, chemicals and financial sectors, the conclusion of the agreement will play a very important role in promoting the further investment of European companies in China.
After entering May this year, the ratification process of the agreement was overshadowed, including a resolution by the European Parliament suspending the review process for the China-EU Investment Agreement. However, the industry generally believes that the current temporary obstruction will not affect the long-term trade development between China and the EU. I still have a strong confidence in the development of trade and investment between China and the EU.
The impact of the EU's new policy bill on Chinese companies
International Market: I heard that the EU recently issued draft legislation on foreign subsidies, how does this affect Chinese companies' investment in the EU?
Tang Xiaoyi: Very good question! On 5 May 2021, the European Commission issued a legislative proposal to investigate and punish foreign subsidies that distort the EU's unified market, setting out rules and procedures. According to the Commission's interpretation, the purpose of this legislation is to fill regulatory gaps in the EU's existing policy regime and to create a level playing field between EU operators and non-EU operators.
Under the draft legislation, the European Commission will have the power to investigate foreign subsidies received by enterprises engaged in any "economic activity" in the EU Unified Market, in particular the transaction activities of foreign enterprises related to the acquisition of control over EU enterprises or the merger with EU enterprises or participation in public procurement proceedings. The Bill creates a new reporting obligation that gives the Commission special competence to assess whether there are foreign government subsidies for unfair competition in transactions and public tenders.
International Market: How will this affect Chinese companies?
Tang Xiaoyi: Here are several key pieces of information that deserve the attention of Chinese companies: first of all, there is a new mandatory filing obligation. That is to say, if the turnover of the EU target company in the EU in the M&A transaction exceeds 500 million euros and the financial support received by the operator concerned from the third country is equal to or exceeds 50 million euros, the transaction needs to be declared; The European Commission may proactively review information on suspected distorted foreign subsidies obtained from any source.
Some commentators in the industry believe that although the draft legislation does not specify a specific country, it is clear that the targets include investment enterprises from China, as measured by the intention of the European Commission to prevent foreign enterprises receiving government subsidies from acquiring EU enterprises or participating in eu public tenders, as well as the legislative design.
International Market: It is understood that the European Union is preparing to introduce a carbon border adjustment tax, can you introduce the specific situation? Which Chinese companies will bear the brunt of the impact?
Tang Xiaoyi: This question is a very timely question. This starts with the EU's ambitious Green Deal. The European Green Deal is a series of policy initiatives launched by the European Union with the goal of making Europe climate neutral by 2050. One of the goals of the initiative is to reduce the EU's greenhouse gas emissions by at least 55 percent by 2030 compared to 1990 levels, known as the Fit for 55 plan.
However, there is an obvious problem with the implementation of the European Green Agreement in Europe, which is called "carbon leakage". The so-called "carbon leakage", in the view of the Eu, refers to the existence of other countries in the world that do not have the same carbon emission targets as the EU, because the EU's industry has a huge cost in environmental protection and emissions, which will cause some high-energy industries to shift from the EU to other countries with lower emission reduction targets, or the EU's local products are replaced by high-energy imported products, which is the so-called "carbon leakage". High-energy industries such as steel, cement and aluminum are typical examples.
As a result of the "carbon leak", globally, emissions will not be reduced, but only the transfer of industries from the low-carbon EU to other countries, or the flow of high-carbon products from other countries to the EU. In theory, this would waste the EU's efforts to meet the Paris Agreement's global climate goals.
Thus, a mechanism to prevent these loopholes has emerged, which is called the "carbon boundary adjustment mechanism" and the "carbon border tax". That is to say, due to the existence of different emission targets around the world, the EU will propose a carbon boundary adjustment mechanism for specific industries, and impose a certain carbon emission border tax on imported products, thereby reducing the risk of carbon leakage.
International Market: What industries will be covered by carbon border tax priorities?
Tang Xiaoyi: On July 14, the EU proposed a package to deal with climate change, including a draft carbon boundary adjustment mechanism. After the draft was introduced, it received widespread attention around the world. The relevant energy-consuming industries in the EU believe that this is conducive to fair competition between European industries and foreign importing industries, and avoids foreign low-priced and high-energy-consuming industries from entering the EU; while the world's major exporters are worried that this may be a disguised trade protection that will hinder the development of trade. The EU expects to implement the measures from 2023.
Judging from the information obtained so far, cement, electricity, fertilizer, steel and aluminum and other industries will be the key industries of the "carbon boundary adjustment mechanism", and China's relevant export enterprises must seriously study the EU's carbon boundary adjustment mechanism to reduce future losses in the EU market.
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