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Trade and foreign policy: what to expect from the next European Commission term

Trade and foreign policy: what to expect from the next European Commission term

    On 18 July 2024, Ursula von der Leyen was re-elected as President of the European Commission. Her political guidelines for the next European Commission highlight the key challenges and priorities for the EU from 2024 to 2029, including security, defence, climate change and competitiveness, and indicate the key initiatives to address these challenges.

    Key takeaways

    • A new foreign and security policy is envisaged to address an age of geostrategic rivalries and the weaponisation of economic dependencies.
    • Sustainable competitiveness is high on the political agenda – this includes massive investments in decarbonisation, digital tech and research and innovation to reduce dependencies in supply chains, make business easier and fulfil climate neutrality goals.
    • The U-turn on defence policy initiated by the previous European Commission continues, as von der Leyen envisages a "European Defence Union".
    • To implement the green and digital transitions, a strong focus is set on staying on course for the goals set out in European Green Deal and establishing a new "Clean Industrial Deal" for competitive industries and quality jobs.

    Trade – New economic foreign policy

    Geopolitical tensions have highlighted the risks of economic dependencies and security concerns. As a result, the previous European Commission had shifted towards a more assertive trade policy and adopted a series of measures to expand the EU trade toolbox, including the Foreign Subsidies Regulation (see our February 2023 update), the Anti-Coercion Instrument and the International Procurement Instrument. Additionally, the use of existing instruments such as trade defence instruments surged.

    The challenge for the new European Commission will be maintaining the right balance between economic security and an open economy. Currently, it looks like the new European Commission will continue the current approach which involves: counterbalancing market distortions, diversifying supply chains, boosting technological competitiveness and establishing stronger relationships with like-minded partners.

    In the political guidelines, von der Leyen stresses the need to promote the EU's competitiveness whilst simultaneously protecting against risks related to weaponisation of economic dependencies, resilience of supply chains and technology security and leakage. In order to achieve this delicate balance, she calls for a new economic foreign policy based on three pillars: economic security, trade and strengthening partnerships.

    Economic security

    Any action to advance the EU's economic security will be based on appropriate risk assessments and on the principle of de-risking, especially when dealing with certain third countries, with a clear reference to China. The guidelines do not announce any new initiatives; instead they emphasise the need to finalise the review of the EU Screening Regulation (Regulation 2019/452), strengthen the Export Control Regime with view to a genuine coordinated approach (on the basis of the White Paper on Export Controls from January 2024), and the ongoing discussions on addressing risks coming from outbound investments. 

    Reducing import dependencies for critical products will also be key to achieving economy security. President von der Leyen intends to achieve this by developing "economic security standards for key supply chains" with G7 partners and other aligned countries, like the Republic of Korea, Australia and New Zealand. 

    Trade

    The second pillar of the new economic foreign policy is trade. Firstly, von der Leyen reinforces the importance of concluding and enforcing free trade agreements. Secondly, she envisages developing a new range of Clean Trade and Investment Partnerships to ensure diversified and resilient supply chains, in particular for critical minerals and raw materials. These partnerships would complement the Critical Raw Materials Act which is designed to tackle the issue of highly concentrated imports of certain raw materials of strategic importance.

    Trade defence instruments shall be used "where and when needed". The EU has already demonstrated that it will make a determined use of its trade defence instruments, in particular against China, with a record number of anti-dumping and anti-subsidy investigations into imports from China in recent years.

    Partnerships

    The final pillar of the new policy is partnerships. We expect the European Commission to improve the Global Gateway (the European strategy to support smart investments in infrastructures across the world) by proposing an integrated offering which will include trade and macro-economic support.

    Competitiveness and Single Market

    Closely linked to the new economic foreign policy is the issue of EU competitiveness, which has suffered due to various international (unfair competition, high energy prices, supply chains dependencies) and domestic (difficulties in accessing the capital and shortages of skills) factors.

    The guidelines set out a new European Prosperity Plan to facilitate doing business in the EU (through simplification and harmonisation of certain rules), boost productivity, promote sustainable competitiveness, invest in strategic technologies (such as AI, clean tech and biotech) and support innovative companies to grow in the EU.

    A cornerstone is a complete and deepened Single Market (as defined also by Enrico Letta in his report "Much more than a market"), especially in sectors like services, energy, defence, digital, electronic communications and finance through better cooperation and substantial investments.

    The guidelines also suggest a new approach to competition policy to keep pace with evolving global markets and be more supportive of innovative companies. While ensuring a level playing field, von der Leyen intends to ensure that innovation and resilience are given appropriate weight in merger assessments.

    Another area where von der Leyen considers intervention is needed is AI. To support the development of AI and boost investments in new technologies (such as supercomputing, the Internet of Things, genomics, quantum computing), von der Leyen announced that the European Commission will launch an AI Factories initiative in the first 100 days of her new mandate. This initiative will be linked to a European Data Union Strategy to ensure a simplified and coherent legal framework on data for companies.

    European decision making 

    The political guidelines include a paragraph on the need to enhance Europe's capacity to act. This will involve reflecting on new decision-making processes and renewing the interinstitutional agreement on simplification and better law making. 

    Von der Leyen also intends to focus on better enforcement and implementation of existing laws and proposes to hold regular dialogues with interested parties.

    Green agenda

    Notwithstanding post-election rumours on initiatives to water down some of the main goals set out in the European Green Deal, von der Leyen stressed that the new European Commission will focus on implementing the existing legal framework for 2030, while working on a 90% emission-reduction target for 2040 and has confirmed the goal of reaching climate neutrality by 2050.

    She also added that, in the first 100 days of her mandate, she will present a proposal for a Clean Industrial Deal to decarbonise. At the same time, she recognises that the European Commission needs to work to reduce energy bills for companies and households. The European Commission will scale-up and prioritise investment in clean energy infrastructure and technologies, including renewables, low carbon technologies, grid infrastructures, CO2 transport and storage infrastructures. 

    The European Commission will propose an Industrial Decarbonisation Accelerator Act which will support companies in their climate transition by, in particular, channelling investments and speeding up planning and permitting processes, in line with the recently adopted Net Zero Industry Act (see our July 2024 update). 

    Next steps

    In the immediate aftermath of the election, President von der Leyen is focusing on the composition of the new European Commission. On 25 July 2024, she sent official letters to the EU Heads of State and Government, inviting them to submit two possible candidates for European Commissioner posts by the end of August: each Member State will have one European Commissioner, with the exception of Germany and Estonia, who were already awarded EU "top jobs". Candidates will be interviewed from mid-August, with the aim of assembling a European Commission that is gender and politically balanced. Once this is done, President von der Leyen will send mission letters, which will be based on her political guidelines. 

    She has already announced that she intends to simplify the structure of the European Commission and that there will be a dedicated portfolio for defence. Competition, industry, trade and economy are the most requested portfolios by Member States.

    The goal is to assemble the new European Commission by the beginning of November. Around this time, the European Commission also typically presents its work programme for the year ahead, including new initiatives, withdrawal of pending proposals and reviews of existing legislations. It is likely that the work programme will be adopted slightly later this year, depending on when the new European Commission is fully assembled.

    The tenth legislative term of the European Parliament has already started. Right after von der Leyen's re-election each parliamentary committee elected its chair, who will oversee and coordinate the committee's work for the next two and a half years. Bernard Lange has been re-elected as chair of the International Trade Committee which is responsible for matters relating to the establishment, implementation and monitoring of the EU's common commercial policy and its external economic relations. He has been chaired the International Trade Committee since 2014 so this is another sign that the EU's assertive trade policy will continue under the new European Commission. 

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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