EU round-up: Mercosur summit, tariff cliff edge and hydrogen dispute

Mon 10 Jul 2023
Posted by: Phillip Adnett
Trade News

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In our latest round-up of EU trade policy, the IOE&IT Daily Update looks at the latest developments in EU’s negotiations with the Latin American trade bloc Mercosur, an update on the ‘cliff edge’ tariff for electric vehicles under the EU-UK Trade and Cooperation Agreement (TCA) and a possible flare up with the US over hydrogen.

Mercosur bridles at EU trade terms

The Mercosur bloc has held a two-day summit to try and resolve the last obstacles in concluding the protracted ratification process for its trade agreement with the EU, reports Euronews.

Mercosur is a common market consisting of Argentina, Brazil, Paraguay, Uruguay and Venezuela, with Bolivia currently in the process of joining. Venezuela’s membership has been suspended since 2017.

An EU-Mercosur trade pact was agreed in principle in 2019 but is awaiting ratification from both EU and Mercosur member states.

The Mercosur meeting – held in Puerto Iguazú in Argentina – came as the EU has proposed a ‘side letter’ to the agreement with extra environmental guarantees, which has upset South American leaders who see the deal as “asymmetrical”.

Argentine foreign minister Santiago Cafiero said the agreement had an excessive focus on environmental issues at the expense of economic and social considerations in largely agricultural and developing Mercosur member states, reports France 24.

Mercosur will scrap tariffs on 95% of agricultural imports from Europe, but the EU will reciprocate with only 82%.

EU-Chile deal to boost exports

The EU has moved towards ratification of a new agreement with Chile that aims to foster closer economic ties and increased opportunities for exports and investments.

According to the EU, a signed deal could provide better access and sustainable investment in critical raw materials such as lithium, contributing to shared ambitions for a green transition.

Under a deal with Latin America’s fifth largest economy, 99.9% of EU exports will be tariff free, increasing their value by up to €4.5bn.

Other advantages could include making it easier for EU companies to provide their services in Chile, better treatment for EU investors and improved access to Chilean government procurement contracts.

Tariff warning on British car exports

The EU is said to be sticking with a plan to impose tariffs on UK-manufactured electric vehicles despite pressure from Westminster and the automotive industry, according to the FT.

As reported previously by the IOE&IT Daily Update, origin rules contained in the TCA could make it difficult for manufacturers to source parts from outside of Europe.

As it stands, at least 40% of the value of any electric car should originate from the EU or UK in order to avoid a 10% tariff, with this number set increase to 45% from 1 January 2024.

Car makers on both sides of the channel have urged the both the UK and EU to delay the rules until 2027.

The news of the EU sticking to their position comes despite prime minister Rishi Sunak reportedly enlisting German chancellor Olaf Scholz to help delay the tariff.

Hydrogen dispute looms with US

The head of the European Parliament’s trade committee is calling for taxes to be imposed on subsidised US-produced hydrogen.

Bernd Lange has called for a more assertive approach to EU trade policy with the US investing €370bn in green investments through its US Inflation Reduction Act.

He claimed US subsidies would bring its hydrogen price down to $2 per kg, compared with about €9 in the EU.

“Therefore, we will tell our American friends that we will not accept these illegal subsidies – which are also illegal within the WTO framework – and we will initiate anti-dumping measures accordingly,” he added.

Politico reports that president Joe Biden’s climate plans are attracting European companies to switch investment to the US.

China restricts rare metals to EU

The EU is yet to respond to China’s latest restrictions on the exporting of critical minerals, according to Politico.

Last week, China announced new export restrictions on two metals – germanium and gallium – which are key to the manufacturing of semiconductors and electronics, and have uses from military equipment to mobile phones.

The measures were seen by some observers as retaliatory against the Netherlands, which recently announced new export restrictions on advanced semiconductor equipment, reports CNBC.

The Commission told EU trade diplomats that it is analysing the situation, although no high-ranking officials have yet outlined a full response.