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1. UK-EU Relations Tracker Q3

Author:
Cleo Davies and Jannike Wachowiak
Publication Date:
10-2024
Content Type:
Special Report
Institution:
UK in a Changing Europe, King's College London
Abstract:
Released quarterly, the UK in a Changing Europe UK-EU Relations Tracker assesses relations between the UK and EU as well as relationships between the UK and EU member states. This edition of the tracker covers developments from July to September 2023. On 1 October, the UK government introduced the green-lane/red-lane system to ease the flow of goods between Great Britain and Northern Ireland as part of the Windsor Framework. In the context of thawing relations post Windsor Framework, the UK and EU have reiterated their commitment to making the most of the Trade and Cooperation Agreement (TCA). The political agreement on the UK’s association to the Horizon and Copernicus programmes was an important milestone. In other areas, the tracker notes that discussions are ongoing. On the future of the relationship, the tracker highlights a growing mismatch between debates on the two sides. Within the UK, the Labour Party have set out plans for building on the TCA in pursuit of a closer trading relationship. The EU, on the other hand, shows little appetite for revisiting the terms of UK-EU trade. Bilaterally, the UK has now signed general statements or declarations with most EU member states. The focus is therefore shifting from formalising relations to maintaining and implementing them. This requires continued engagement, which the tracker indicates can be difficult to sustain at the highest political level.
Topic:
International Relations, International Cooperation, European Union, and Trade
Political Geography:
United Kingdom and Europe

2. The Strategic Repositioning of LNG: Implications for Key Trade Routes and Choke Points

Author:
Leslie Palti-Guzman and Marc-Antoine Eyl-Mazzega
Publication Date:
04-2023
Content Type:
Special Report
Institution:
Institut français des relations internationales (IFRI)
Abstract:
2022 saw the climax so far of the weaponization of energy. Following its geopolitical demise, Russia has undertaken its own gas amputation, moving from a super energy power status to a diminished role with uncertain prospects and only hard options left. Russia has cut off almost entirely pipeline gas supplies to the European Union (EU), first inflicting huge financial pain and collecting record high revenues, but then simply losing out its largest and best market with no realistic alternative, and no prospect of any significant return. However, the Kremlin could still further reduce some of the remaining pipeline gas or liquefied natural gas (LNG) supplies and thus cause some tensions in the markets. Russia also retains leverage on oil markets, where the Kremlin managed to cope with the embargo as well as the price cap and maintain the relationship with Saudi Arabia which drives OPEC+ decisions. Meanwhile, in 2022, the European energy system has managed to surprisingly adapt on the supply and demand side to the three shocks: the decoupling from Russian energy supplies, the hydropower generation crisis, and the French nuclear electricity crisis. Liquefied natural gas has made a comeback in Europe and has been a savior of industries, governments, and populations. The LNG corridor between the EU and the United States (U.S.) has become the most dominant LNG trade route in 2022. This came at a huge cost though – EU’s gas import bill soared ten times from 2020 and three times from 2021 levels. For 2023, the European gas balance is much more fragile, as the demand reduction potential has reached its limits, same for the ability to attract additional non-Russian exports to Europe, at a time when missing Russian volumes will probably reach 120 billion cubic meters (bcm), instead of about 77 bcm in 2022. More moderate price levels since November 2022 have clearly overshadowed this fundamental mismatch, especially as the weather has been mild and China was still struggling with the pandemic. With an additional 30-40 bcm of missing Russian gas to offset in 2023 compared to 2022, Europeans can be expected to benefit from an extra gas of around 20-25 bcm left in storages thanks to mild weather and available LNG. They have no choice but to continue saving energy in a hurry, that is both on gas and electricity. Gas demand in power generation had increased in the first nine months of 2022 before falling in Q4 2022, and well over 15 bcm can be saved here in 2023 as more nuclear is available altogether, alongside more renewables, and some coal. It will be critical to reduce peak loads though. The key improvement is in terms of logistics, with the massive new LNG import capacity deployed across Europe. Overall, EU’s import situation will be very tensed and fragile for the next winter. The key challenge is that EU’s gas supply security ultimately depends on the weather in Europe, China’s and Japan’s LNG demand, and weather or technical outages in the Gulf of Mexico or in other producers. Any slight disruptions in supplies can have major impacts. As a last resort, bringing back some Groningen supplies, no matter how politically sensitive this would be, must be considered and prepared. Large financial compensations and effective governmental action would notably be required to offset the hardships.
Topic:
European Union, Gas, Exports, Trade, Energy, and Russia-Ukraine War
Political Geography:
Russia, China, and Europe

3. Building Resilience? The Cybersecurity, Economic & Trade Impacts of Cloud Immunity Requirements

Author:
Matthias Bauer
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
EU Member States should call on the EU’s Cybersecurity Agency (ENISA) and the European Commission to abandon immunity requirements in the proposed EU Cloud Certification Scheme (EUCS). With immunity requirements in the EUCS, the EU risks opening a Pandora’s box, paving the way for data localisation, foreign ownership restrictions, and local establishment requirements in digital industries globally leading to rising trade tensions. ENISA’s current proposal could increase policymakers’ appetite for data localisation in the EU. It would empower the European Commission and Member State authorities to exclude foreign businesses from domestic cloud services markets and set a dangerous precedent for any data-intensive sector. The list of “sectors of high criticality” could be logically extended to both existing services (e.g., financial services) and to new technologies and business models, such as IoT in the energy and healthcare sectors, and autonomous driving in the transport sector. Non-EU jurisdictions would be pressured to respond in kind. EUCS immunity requirements would increase cloud adopters’ exposure to cybersecurity risks. Data localisation often creates obstacles to an integrated management approach towards cybersecurity risks. Country of headquarter and foreign ownership restrictions in the proposed EUCS risk removing global frontier cybersecurity technologies from Member State markets. Excluding these and other EU and non-EU companies from EU Member States could result in a long-lasting security deficit of EU cloud adopters vis-à-vis organisations that are still able to use reliable and often best-practice cloud services offered by providers from outside EU Member States. Immunity requirements in the EUCS are discriminatory by design. They could provoke retaliatory measures by EU trading partners, either unilaterally or through WTO or bilateral FTA (e.g., UK-EU) Dispute Settlement. Local establishment requirements and foreign ownership restrictions would by design discriminate against foreign cloud providers. US-headquartered companies, which currently serve more than 75% of the EU market, would be most affected by EU immunity requirements.[1] Depending on US preferences and the scope of the proposed EUCS, the EU could be subject to retaliatory tariffs of up to USD 12 billion worth of EU goods exports or equivalent restrictions for EU services exports to the US. Other governments could lodge complaints via the WTO as well (e.g., Singapore, Japan, Canada and others, where cloud development is advancing rapidly). EU suppliers are currently in no position to manage a broad-based transition to cloud, and thus such requirements would delay significant efficiency and security gains that current foreign suppliers could offer. A blanket exclusion of non-EU cloud vendors would also likely undermine Europe’s objective to achieve a 75% cloud adoption rate for EU enterprises. Sensitive European businesses and public sector organisations would have to delay migration and make do with legacy systems for a very long time. Contrary to large countries, these negative impacts would be much more pronounced for smaller EU Member States, which lack the presence of large domestic incumbents and generally rely much more on an open international trading regime for digital services. ENISA’s cloud certification scheme should be limited to technical and transparency requirements. Immunity requirements for non-personal data should be addressed in bilateral initiatives such as the EU-US Trade and Technology Council (TTC) or agreements requiring a company that sought to offer services of the highest level of sensitivity to be headquartered in a country granted adequacy with EU data protection rules, or a country that is an adherent to the OECD’s Trusted Government Access principles, or (concerning the US) a participant in the upcoming Trans-Atlantic Data Privacy Framework. Excluding foreign companies from operating in the EU would have far-reaching consequences. If that is the intent, it should require a sound legal analysis and the decision should be taken through a formal legislative procedure at the EU level.
Topic:
Economics, Markets, European Union, Cybersecurity, Digital Economy, Trade, and Resilience
Political Geography:
Europe

4. Reforming Standard Essential Patents: Trade, Specialisation, and International Jurisprudence

Author:
Fredrik Erixon and Oscar Guinea
Publication Date:
04-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The European Commission is considering a radical overhaul of the system governing Standard Essential Patents (SEPs). A leaked proposal suggests that the Commission wants to take control over the registration of SEPs, take efforts to regulate their essentiality, and intervene in negotiations over royalty rates if parties do not come to an agreement. The underlying assumption is that such a system will benefit SEP implementers and the European economy, and that the common holders of SEPs will be cut down a size or two. The logic behind this policy is that, since there are more SEP implementers than holders, any change in favour of implementers will have a net positive effect on the EU economy. However, this is doubtful. The EU is a R&D powerhouse for many of the technologies protected under SEPs and since most of the global production of the goods using these technologies is done outside Europe, the EU is a net exporter of innovation and a receiver of revenues from the licensing of these technologies. Using data on trade, specialisation, and market revenues, this paper comes to a different conclusion: the EU economy is likely to be a net loser if the balance between holders and implementers is changed. Moreover, there is a general and fundamental interest for Europe to preserve a system of standards and SEPs that allows it to punch above its weight in international policies and practices in standards and patents.
Topic:
Reform, European Union, Trade, Patents, Specialization, European Commission, and Jurisprudence
Political Geography:
Europe

5. Trade and Competitiveness: Putting the Firm at the Centre of the Analysis

Author:
Lucian Cernat and Oscar Guinea
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The European Commission published its communication for the long-term competitiveness of the EU. Trade and Open Strategic Autonomy were among the selected policy areas that will drive EU competitiveness in the future and trade with the rest of the world as a share of EU Gross Domestic Product (GDP) was the selected indicator to measure progress. This Policy Brief proposes a new set of indicators that complement this and similar indicators that focus on the value of trade. Using the Trade by Enterprise Characteristics (TEC) database, this paper produces indicators that measure the number of exporters, non-EU suppliers, non-EU customers, and foreign companies. By putting the firm at the centre of the analysis, these indicators offer insights that complement policy-makers’ views on trade and competitiveness.
Topic:
European Union, GDP, Trade, Strategic Autonomy, European Commission, Economic Competition, and Competition
Political Geography:
Europe

6. Global trends in countries‘ perceptions of the Belt and Road Initiative

Author:
Alicia Garcia-Herrero and Robin Schindowski
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Drawing on global media reports, we conduct a sentiment analysis of the image of China’s Belt and Road Initiative (BRI) and the evolution of its image over time. Our main finding is that perceptions of the initiative deteriorated significantly in many geographies from 2017 to 2022. The notable exception is in sub-Saharan Africa where the BRI’s image remains positive, even if slightly less so than in the past. This is notwithstanding increases in debt levels with China, much of which now face potential restructuring. Furthermore, we find significant inter- and intra-regional differences in the average sentiment towards China’s landmark project, as well as a much worse image of the initiative in countries which, until today, are not part of the BRI. Finally, we focus on the European Union, Africa and China’s immediate neighbourhood to better understand the complexities behind the perceived benefits and challenges associated with China’s Belt and Road Initiative.
Topic:
Bilateral Relations, European Union, Geopolitics, Economy, and Trade
Political Geography:
China, Europe, and Asia

7. How Europe should answer the US Inflation Reduction Act

Author:
David Kleimann, Niclas Poitiers, André Sapir, Simone Tagliapietra, Nicolas Veron, Reinhilde Veugelers, and Jeromin Zettelmeyer
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The 2022 United States Inflation Reduction Act (IRA) is a significant and welcome climate law. It also includes trade-distortive subsidies, including local-content requirements prohibited under World Trade Organisation rules – the first time the US has done this and a blow to the international trading system that could trigger protectionism in other countries. The expected IRA green subsidies are of similar size to those available in the European Union, except in renewable energy production, where EU subsidies remain far larger. However, there are important qualitative differences. Some IRA subsidies discriminate against foreign producers while EU subsidies do not. IRA clean-tech subsidies are simpler and less fragmented, and they focus mainly on mass deployment of green technologies rather than innovation. The IRA will likely harm Europe through its competitiveness effect, while it will likely benefit climate transition in Europe and most of the rest of the world. However, the magnitude of both effects is very uncertain, partly because the IRA will induce substitution away from Chinese inputs. By forcing the reorganisation of supply chains, the IRA may make the EU and other economies more competitive relative to China. It may also initially slow the green transition. But in the longer run, this effect should be outweighed by the reduction in the cost of clean tech driven by the IRA. In responding to the IRA, the EU should not just seek to protect its competitiveness relative to the US but to pursue broader aims, including competitiveness in general, speedy decarbonisation and broad foreign policy and development policy goals. These aims imply that the EU should not impose local-content requirements of its own, should not loosen state-aid rules and should not mimic the IRA’s approach to manufacturing subsidies. Rather, it should focus on boosting its structural competitiveness, formulate a trade policy response that includes reform of the international subsidies regime, and develop an instrument for EU-level subsidies that focuses on early-stage development and increasing EU resilience to trade disruptions.
Topic:
Governance, European Union, Inflation, and Trade
Political Geography:
Europe

8. Trade Balances and International Competitiveness in Cyber-physical, Digital Task-intensive, ICT Capital-intensive and Traditional Industries

Author:
Alexandra Bykova and Roman Stöllinger
Publication Date:
05-2023
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
In this report, we analyse the international competitiveness of the EU in four industry groups over the period 1995-2018. The groups are delineated by specific factor intensities, where these intensities are assessed from digital tasks performed by labour services and ICT capital stocks. The EU’s positions relating to trade balances, revealed comparative advantages and unit value ratios are assessed relative to its main competitors, such as the US, China, Japan and South Korea. The trade specialisation patterns confirm EU advantages in traditional industries, which still represent the largest part of global trade, and in the group of digital task-intensive industries. In the cyber-physical group of industries, which are characterised by both high digital task and ICT capital intensities, the EU records a trade deficit, although this has been receding in recent years. Competitiveness indicators depict heterogeneity among EU countries. The loss of international competitiveness for some technology front-runners is a worrying sign. On the positive side, however, a reduction in trade deficits or an improvement in product quality and market shares is evident for certain EU countries, especially in the Central European region.
Topic:
International Trade and Finance, European Union, Trade, Digitalization, and International Competition
Political Geography:
Japan, China, Europe, Asia, South Korea, and United States of America

9. Carbon Capture and Storage - Publics in five countries around the North Sea prefer to do it on their own territory

Author:
Christine Merk, Gisle Andersen, Åsta Dyrnes Nordø, and Torben Helfrich
Publication Date:
07-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Carbon Capture and Storage (CCS) has been identified as an essential part of the lowest-cost path toward reaching the goals of the Paris Agreement. In Europe, an accelerated pace of CCS development indicates that a CO2 transport and storage system could be established by 2030. However, we know little about how the public views the market for transport and storage of CO2 currently under development in Europe. In early 2023, we conducted an experimental comparative survey to study public opinions on cross-border CO2 trade for storage in Denmark, Germany, the Netherlands, Norway and the UK. The share of respondents that perceive CCS as somewhat positive or very positive varies considerably between the countries; we find the highest share in Denmark (69%), followed by the UK (68%), Norway (67%), the Netherlands (57%) and the lowest share in Germany (49%). Especially concerns about environmental risks and costs lead to more negative views, while perceptions of job creation and economic opportunities lead to more positive evaluations. The experimental results show that importing CO2 for storage is among the least preferred options in all countries, while the storage of CO2 that has been captured in the own country is the most preferred option; the gap in the share of positive evaluations is substantial and amounts to up to 20 percentage points in the UK. Respondents who feel that countries are responsible for reducing national greenhouse gas emissions and storing their own captured CO2 drive the pattern of a more positive evaluation of a domestic CCS value chain and a more negative evaluation of importing CO2.
Topic:
Climate Change, Trade, Carbon Emissions, and Perception
Political Geography:
Europe and North Sea

10. The Future of Arms Control: Ready to (Dis)Agree?

Author:
Tõnis Idarand, Kalev Stoicescu, and Ian Anthony
Publication Date:
05-2023
Content Type:
Special Report
Institution:
International Centre for Defence and Security - ICDS
Abstract:
Having been crumbling already for years, international arms control architecture is now in a perilous state. Existing arrangements have either been losing their effectiveness or outright failing due to Russia’s non-compliance, whilst Russia’s aggression against Ukraine might have delivered the final blow to this system. Even after the war in Ukraine has ended, it will take years to re-establish the level of trust necessary to, again, engage with Russia on arms control. The return to the pre-war ‘business as usual’, where the dialogue will resume as if never interrupted, is unlikely. Arms control dialogue with Russia ‘at any cost’ cannot produce an acceptable result. Arms control as we have known it, with its legally binding and verifiable agreements, may have come to an end. The trends emerging from the expert discussions are more focused on a different set of instruments, such as political commitments, risk reduction, or transparency and confidence building measures. Development of new technologies, proliferation of new weapon systems, the rise of China as a global player, and increasing role of non-strategic nuclear weapons in Russian and Chinese military doctrines will all have an impact on global arms control. The fate of the New START Treaty will have a decisive effect on the future of arms control and the prospects of the nuclear non-proliferation regime already under immense pressure. This report attempts to summarise the developments in arms control architecture over the last decades and accentuate the trends that might be consequential when designing the arms control system of the future. The year 2023 has already demonstrated that arms control is less relevant in Russia’s security thinking. Moscow exploits the existing arrangements mainly as leverage to influence the US and NATO’s policy towards Ukraine or obtain concessions regarding its proposals on the new European security arrangements. The role of arms control in European security might be in decline, but the key elements of European security architecture are still in place, and most states continue to implement them. NATO allies – when discussing and designing arms control or confidence-building measures – shall consider how these instruments advance the security of allies. Under the current circumstances, the priority is to strengthen defence and deterrence of the Alliance. This is the only way to lay the groundwork for a constructive arms control dialogue with Russia.
Topic:
Security, Arms Control and Proliferation, Weapons of Mass Destruction, Weapons, Nonproliferation, Trade, and Military
Political Geography:
Russia and Europe