EU Leaders Want New Trade Tools Against China

If you make cars, machine tools, chemicals, aerospace parts or pharmaceuticals in Europe, the new trade tools that EU leaders asked for on 15 October concern your industry. A Franco-German letter to the Commission lists those sectors as hit by a “massive industrial shock” and asks for powers that include “powerful measures up to an immediate cut-off from the internal market if needed”, EU Insider reports.

New trade tools, with the blueprint left out

The summit conclusions, adopted on 15 October and published the next day, ask the Commission to “urgently enhance the EU toolbox with new instruments” for what they call global macroeconomic imbalances. Council President António Costa had put the same phrase on the agenda in his invitation letter a week earlier.

It names no country. EUobserver reads it as a euphemism for China and reports that the Commission’s trade package, due by the end of the year, will build on the Franco-German paper.

The letter does not name China either, and Berlin officially describes the problem as “unfair practices” and “distorted competition” while saying it wants to stay within WTO rules. The Commission puts the EU’s trade deficit with China at about €1 billion per day. The conclusions give the direction and leave the design to Brussels, which makes the exact powers a question for the coming months.

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A kill switch behind an untested vote

The letter wants the tool activated by a “reversed qualified majority”, and Ursula von der Leyen presented a cut-off tool as an option in her opening remarks, signalling that her trade team could start developing it, the South China Morning Post reports. In plain terms, measures would go ahead unless enough member states block them.

Today’s closest instrument, the Anti-Coercion Instrument, needs a positive qualified majority to act and has never been used in the nearly three years since it was created. Officials say the reversed rule would make it harder for Beijing to split the member states, and that the new tool would not be ready before next year at the earliest.

Not every capital shares the urgency. Spain and Hungary are pushing for closer ties with Beijing, EU Insider writes, and a cut-off tool would also hit European firms and consumers, because the EU relies on China for pharmaceutical ingredients, batteries and machinery. Spain votes on 29 November.

Beijing is already positioning itself. About a week before the summit, trade commissioner Maroš Šefčovič reached a preliminary deal on Chinese hybrid cars. China calls it a one-time concession and has warned of countermeasures if the EU raises new trade barriers, TT reports, and leaders have to weigh any new measure against the risk of undoing that deal.

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The same text promises relief at home

The conclusions also respond to energy prices. Paragraph 6 says the situation “urgently requires a coordinated European response of targeted and temporary measures”.

Leaders welcomed the Commission’s intention to extend the temporary state aid framework for the most exposed industrial sectors, to develop a short-term framework for refinery capacity and efficiency, and to bundle energy demand on a voluntary basis. They also welcomed a Commission proposal to postpone certain obligations under the Methane Regulation.

On carbon, paragraph 8 asks the Commission to “update the assessment of all impacts of ETS2, in particular its design and safeguards” (ETS2 is the planned second EU carbon market). Paragraph 11 calls for a carbon market that protects against carbon leakage and cuts price volatility and its effect on electricity prices, while keeping a market-based price signal.

Leaders set the direction on 15 October. The first real test comes when the Commission puts a text on the table and 27 capitals have to decide whether they will vote for a cut-off.