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What’s Europe’s Place In The World After The Pandemic?

What’s Europe’s Place In The World After The Pandemic?

Friday, 29 January, 2021 - 05:00

This is one of a series of interviews by Bloomberg Opinion columnists on how to solve today’s most pressing policy challenges. It has been condensed and edited.

Ferdinando Giugliano: Along with other global leaders, you’re participating in the virtual World Economic Forum meetings. A major topic at this year’s forum is the inauguration of US president Joe Biden and what the new administration’s agenda means for the global economy. You’re a former prime minister of Latvia and now an executive vice president of the European Commission in charge of trade and economic policy. Are you optimistic about the future relationship between the European Union and the US?

Valdis Dombrovskis, Executive Vice President, European Commission: There are very high expectations for a new start to trans-Atlantic cooperation. The EU and the US are strategic partners and it is important that we cooperate on a number of areas, because if we work together we can be a force for good globally. One area where we need to improve our cooperation is trade, because during the last four years there have been tensions. We are looking forward to resolving certain bilateral tensions, for example on steel and aluminum, or the dispute between Boeing and Airbus. We also expect the US to come back at the multilateral table, within the framework of the World Trade Organization, to work on the reform of the WTO and on restoring the functioning of the WTO’s appellate body.

FG: When do you expect we will see some tangible progress in the EU-US trade relationship?

VD: The new US Trade Representative is not yet in office. She needs to pass her hearing in the Senate, but we have already started to engage with the new administration. Our proposal on the Airbus-Boeing dispute is to suspend the tariffs from both sides and to discuss and agree on future disciplinary mechanisms in the area of civil aviation. It’s the same proposal we had with the previous administration, but we hope for a more cooperative approach now.

FG: What do you make of the recent decision by the new administration to tighten the “Buy American” provisions in federal procurement?

VD: It is something we are assessing. The executive order was [just] published, so it clearly requires a more in-depth assessment from the Commission side. We are aiming for an open public procurement market. Ours here in Europe is quite open. This reiterates the need to accelerate our EU work on an international procurement instrument, a legislative file that has been moving relatively slowly. This will allow us to restrict access to our market for those third countries that are restricting access to their market for EU companies.

FG: The EU signed a Comprehensive Agreement on Investment with China at the very end of last year. Some see it as a strategic mistake to sign such a pact just before the arrival of the new US. administration, instead of forming a united front vis-a-vis Beijing. How do you respond to these criticisms?

VD: The fact that we have a Comprehensive Agreement on Investment (CAI) is by no means hindering our cooperation with the US on China. The US already had its “Phase One” deal with China; recently the “Regional Comprehensive Economic Partnership” was agreed to. From that point of view, the EU had some catching up to do. In a sense we are now on a more equal footing with the US. Just as we never thought that the “Phase One” deal would prevent us from cooperating with the US on China, the same is true now for the US with regard to our deal. Moreover, CAI is a focused agreement. It is in no way resolving all our bilateral problems with China, and there are many. There is plenty of scope for co-operation with the US because we share many concerns and we are prepared to work together. Many of the proposals with regard to the reform of the WTO are there exactly to address challenges coming from China’s socio-economic model.

FG: Isn’t the EU being naïve about China? Beijing had already committed in the past to reforming its state-owned enterprises but did little about it. And there are few signs it is ready to improve on labor rights. Do you have any concrete way to ensure there is progress in these areas?

VD: The EU-China economic relationship is currently asymmetric. Our market is much more open for Chinese companies than China’s market is for EU companies. There had been longstanding calls from EU member states, the European Parliament and various stakeholders to address this asymmetry. CAI allows us to address these asymmetries: The agreement includes lots of new commitments from the Chinese side, and in return China is locking in the existing level of openness in the EU and obtaining some very limited openings. Of course, enforcement is important. That’s why we were very insistent in having proper enforcement mechanisms that allow us to ensure that China is meeting its commitments — for example, a state-to-state dispute settlement mechanism. Moreover, we have a political monitoring mechanism which, in case of serious breaches, allows us to escalate quickly to the political level.

FG: Let’s talk about the relationship with Britain. You reached a landmark Brexit deal at the end of 2020, but there are areas that are still very much open for discussion — financial services, for example. When should we expect a deal in this area? Don’t you risk penalizing those EU companies that benefit from their access to the City of London?

VD: Having an overall agreement with the UK is certainly good news, because it allows us to avoid a substantially more disruptive scenario. With regard to financial services, they were never meant to be part of this deal. They are normally not part of our free trade agreements with other countries. Therefore, we are now working on a framework for regulatory co-operation on financial services and we are aiming to have it ready by March 2021. We are also looking at concerns about financial stability, and we took decisions to address potential risks there. That’s why we agreed on temporary equivalence for central counterparties and for central securities depositories. In any case, we had outlined to both financial market participants and companies who are users of financial services that they had to be ready for this situation. By leaving the single market, the UK was not going to have automatic access to the EU market. So we knew that many adjustments had already taken place in the last few years. This has allowed for a broadly uninterrupted provision of financial services.

FG: You must have seen the protests of some British businesses that are complaining about the amount of paperwork they need to fill in to export to the EU. What is your reaction?

VD: Unfortunately, this is the consequence of the UK’s decision to leave the EU, the single market and the customs union, which has led to these new administrative procedures — like customs procedures or phytosanitary controls. One question is, to what extent during the transition period did the UK government communicate to UK businesses the new administrative procedures and make sure they were ready for them? The other issue is one of capacity building on the EU-UK border to ensure a smooth functioning of customs and other procedures to avoid bottlenecks.

FG: Let’s move on to the Covid-19 pandemic. There is a widespread perception that the EU is falling behind countries such as the US and the UK in terms of its vaccination efforts. Is the EU failing its own citizens?

VD: The EU has secured contracts with six companies for 2.3 billion doses of vaccines, which is enough for our citizens and will also allow us to help our neighboring countries and potentially other countries too. There have been two conditional marketing authorizations already granted, to BioNTech/Pfizer and to Moderna. The conditional marketing authorization for AstraZeneca is also coming, so the work is advancing. Now it is important that the pharmaceutical companies make good on their commitments within the framework of these contracts that have been signed with the EU. As for the vaccination rollout, it is for each member state to make its own plans.

FG: There are also fears you may be prepared to recur to vaccine nationalism and bloc exports to other countries. Isn’t this a form of protectionism?

VD: We are now preparing a time-limited system to address our immediate concerns relating to shortfalls of vaccines. This system will be proportionate and would specifically target COVID-19 vaccines covered by an advance purchased agreements within the EU. This would provide us with greater clarity on vaccine production in the EU and their exports. Work is ongoing so I cannot give you more details at this stage. But let me make clear that this system would in any case allow us to fully honor our humanitarian aid commitments and would protect vaccines deliveries to our neighborhood and to countries covered by the COVAX-facility.

FG: One bright spot for the EU in this pandemic has been the creation of the “Next Generation EU” facility, a 750 billion euro ($912 billion) fund to help countries deal with the economic crisis. Do you see this as a seed for the creation of the “fiscal union” Europe needs? And are you worried that the delays of some countries — such as Italy — in delivering their plans on how to spend this money may scupper this dream?

VD: Some have been talking of a “Hamiltonian moment” in the EU, but this remains to be seen. The current basis for the “Next Generation EU” program is an emergency basis. It is meant to be a temporary instrument. However, it must be said that the joint bonds that will be issued in the coming years will stay in the markets for decades, so from that point of view it is going to have a more lasting impact. The 750 billion euros in borrowing will also create lots of euro-denominated bonds, which will strengthen the position of the euro as a reserve currency. Still, it is premature to discuss what potential implications the facility might have in the medium and long term. At the moment it is important to concentrate on the successful rollout of this instrument. In this respect, I would not be talking about delays in any member states.

Italy is actually among those member states that are engaging very actively with the Commission in the preparation of their recovery and resilience plan. This is not surprising since Italy is the largest beneficiary by far from this instrument. Unless there are any hiccups, we expect that the facility’s regulation will enter into force in the second half of February. Only afterwards will member states be able to formally start submitting their plans. However, informally this work is ongoing and the engagement with Rome is very strong. So I would not expect any delay.


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