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In spite of Trump, #Qatar investments highlight Germany's resilience

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When the head of a prominent German industry body opined last month that there was a “thunderstorm coming from the west”, he encapsulated the trepidation spreading across Europe over Donald Trump and the seemingly reckless bullishness of his international trade policy. This stance seemed particularly threatening for Germany and its automotive industry, which sells around 1.3 million cars to the U.S. every year.

It’s easy to see why Trump, who has built his political strategy on aggressive atavism, would fancy a kick at Germany. The American automotive industry has been declining for several months, and with EU’s tariffs on U.S. cars significantly higher than America’s reciprocal duty, scapegoating foreign rivals plays well with Trump’s base.

So far, however, the threats have had relatively little impact. A new report suggests that morale is up in the German business community after a trans-Atlantic truce orchestrated by European Commission president Jean-Claude Juncker on July 25th. Those sentiments may have been buoyed still further by recent economic developments, including a Qatari announcement of €10 billion in new investment focused on Germany’s small and medium-sized enterprises (SMEs) – otherwise known as the Mittelstand.

So how much damage did all this tension do to Europe’s largest economy? In fact, the fallout has been relatively minor. Factory orders slowed unexpectedly in the immediate aftermath of the Trump tweet officially threatening tariffs, but GDP growth has remained steady at around 0.5%. The business confidence index from Germany’s highly respected Ifo research institution slipped in July, but has since recorded its strongest monthly improvement since 2014. A string of thinktanks, including Ifo itself, have raised their growth forecasts, while the Purchasing Managers’ Index, which gauges the health of the manufacturing industry, reached a six-month high last week.

In the words of Juncker himself, though, the EU’s settlement with Trump is only a “ceasefire” - and it is anyone’s guess whether economic relations between Europe and the United States will regain their stability anytime soon.

Will the German economy be able to withstand a more serious breakdown? It certainly seems better prepared to do so, thanks to recent rebalancing. Political stability and record-high employment drove consumer confidence levels to all-time highs last year. This trend has been reflected in household spending, which has risen by €20 billion in just three years. That spending has in turn fuelled record growth in the service sector, which now accounts for over two-thirds of German GDP.

The services growth has significantly reduced Germany’s reliance on traditional manufacturing. The buoyancy of the domestic market also provides a consumer-led bulwark against future shocks, strengthened by a new pay deal affecting two million public sector workers. As these changes continue, Germany’s attractiveness to foreign investors remains undiminished.

Just this past week, for example, German Chancellor Angela Merkel welcomed Qatar’s emir Sheikh Tamim bin Hamad al-Thani to Berlin for the Qatar-Germany Business and Investment Forum. The event might normally have flown under the radar – except that the Qatari emir used the occasion to announce €10 billion of new investment in the German energy sector and Germany’s influential Mittelstand.

Given that much of Qatar’s existing investments in Germany consist of shares in major firms such as Deutsche Bank, Volkswagen, and Siemens, the allocation of this new capital means significant diversification for Qatar’s economic presence in the country. Qatar may also be able to help Merkel on the energy front. Both she and Germany are under fire both within Europe and from Washington for their perceived overdependence on Russian gas supplies. Discussions at the forum included Qatari investment in a liquefied natural gas (LNG) terminal that would help Germany diversify its energy supply.

So is Germany’s reliance on the automotive sector a thing of the past? That is a premature claim, to say the least. The German car industry still accounts for nearly 15% of the country’s GDP and employs over 790,000 people, nearly 1% of the entire population. Trump’s tariffs could seriously curb production at a time when inflation is already running worryingly high and the industry is already reeling from the Volkswagen emissions scandal. They would also vindicate many people’s worst fears, putting a major dent in consumer confidence.

America’s protectionist rhetoric against Europe is not the only storm on the horizon. Washington’s trade war with Beijing could also have major repercussions. Industry groups have warned that German firms doing business in both China and the U.S. are already suffering trading restrictions. Closer to home, the economic crisis in Turkey spells big trouble for German banks, which are thought to have lent Ankara up to €20 billion.

All things considered, however, the German economy has weathered these shocks and disruptions about as well as Merkel and her advisors could have hoped. The great Atlantic Trade War of 2018 does not seem to have migrated from Twitter to the real world – for now, at the very least.

Aviation Strategy for Europe

Boeing subsidy case: World Trade Organization confirms EU right to retaliate against $4 billion of US imports

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The World Trade Organization (WTO) has allowed the EU to raise tariffs up to $4 billion worth of imports from the US as a countermeasure for illegal subsides to the American aircraft maker, Boeing. The decision builds upon the WTO's earlier findings recognizing the US subsidies to Boeing as illegal under the WTO law.

An Economy that Works for People Executive Vice President and Trade Commissioner Valdis Dombrovskis (pictured) said: “This long-awaited decision allows the European Union to impose tariffs on American products entering Europe. I would much prefer not to do so - additional duties are not in the economic interest of either side, particularly as we strive to recover from the COVID-19 recession. I have been engaging with my American counterpart, Ambassador Lighthizer, and it is my hope that the US will now drop the tariffs imposed on EU exports last year. This would generate positive momentum both economically and politically, and help us to find common ground in other key areas. The EU will continue to vigorously pursue this outcome. If it does not happen, we will be forced to exercise our rights and impose similar tariffs. While we are fully prepared for this possibility, we will do so reluctantly.”

In October last year, following a similar WTO decision in a parallel case on Airbus subsidies, the US imposed retaliatory duties that affect EU exports worth $7.5bn. These duties are still in place today, despite the decisive steps taken by France and Spain in July this year to follow suit Germany and the UK in ensuring that they fully comply with an earlier WTO decision on subsidies to Airbus.

Under the current economic circumstances, it is in the mutual interest of the EU and the US to discontinue damaging tariffs that unnecessarily burden our industrial and agricultural sectors.

The EU has made specific proposals to reach a negotiated outcome to the long running transatlantic civil aircraft disputes, the longest in the history of the WTO. It remains open to work with the US to agree a fair and balanced settlement, as well as on future disciplines for subsidies in the civil aircraft sector.

While engaging with the US, the European Commission is also taking appropriate steps and involving EU member states so that it can use its retaliation rights in case there is no prospect of bringing the dispute to a mutually beneficial solution. This contingency planning includes finalizing the list of products that would become subject to EU additional tariffs.

Background

In March 2019, the Appellate Body, the highest WTO instance, confirmed that the U.S. had not taken appropriate action to comply with WTO rules on subsidies, despite the previous rulings. Instead, it continued its illegal support of its aircraft manufacturer Boeing to the detriment of Airbus, the European aerospace industry and its many workers. In its ruling, the Appellate Body:

  • Confirmed the Washington State tax programme continues to be a central part of the S. unlawful subsidization of Boeing;
  • found that a number of ongoing instruments, including certain NASA and U.S. Department of Defence procurement contracts constitute subsidies that may cause economic harm to Airbus, and;
  • confirmed that Boeing continues to benefit from an illegal U.S. tax concession that supports exports (the Foreign Sales Corporation and Extraterritorial Income Exclusion).

The decision confirming the EU right to retaliate stems directly from that previous decision.

In a parallel case on Airbus, the WTO allowed the United States in October 2019 to take countermeasures against European exports worth up to $7.5bn. This award was based on an Appellate Body decision of 2018 that had found that the EU and its Member States had not fully complied with the previous WTO rulings with regard to Repayable Launch Investment for the A350 and A380 programmes. The US imposed these additional tariffs on 18 October 2019. The EU member states concerned have taken in the meantime all necessary steps to ensure full compliance.

More information

WTO Appellate Body ruling on US subsidies to Boeing

Public consultation on preliminary list of products in the Boeing case

Preliminary list of products

History of Boeing case

History of Airbus case

 

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Business

No need to rush - This autumn is not the time for premature, short-sighted decisions

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Abraham Liu, Huawei Chief Representative to the EU Institutions (pictured).

"Very much like the rest of 2020, this autumn and winter will also be different from normal times. Regrettably, the Coronavirus Pandemic will continue to test our resilience and adaptability for the foreseeable future. As we enter Europe’s cold season, many among us will be anxious about the months ahead. Yet as in every complicated situation, there is also hope" - writes  Abraham Liu, Huawei Chief Representative to the EU Institutions

"Looking at what we have jointly achieved in the earlier part of 2020, I cannot but also be optimistic: progress on vaccines is coming along impressively. We have been able to curb the mortality of the virus. Overall, we now know so much more about this disease than we did in March. Yes, the weeks ahead will be difficult. But I am confident that all over Europe, we will overcome the virus and we will return to normality.

The other day I visited the House of European History in Brussels. History, and Europe’s tumultuous history in particular, teaches us that nothing can be taken for granted. At numerous times in the past, humanity has experienced a loss of knowledge and technology. It then took enormous efforts and a very long time to get back what had been stupidly destroyed. Let me be clear: There exists no automatism that we can retain our current level of technological development. Without stability and predictability, there is no progress. If the Pandemic teaches us something, it is that technology is humankind’s best ally to beat the virus and also to prevent similar viruses threatening us all in the future. We have no other viable option but to invest in technology and to bank on progress!

Whether the United States and China have now entered Graham T. Allison’s famous “Thucydides Trap” is not for me to judge. What I do believe and advocate though is that Europe has a key role and responsibility in ensuring stability in the months ahead. European Commission President Ursula Von der Leyen and European Council President Charles Michel rightly point out that the EU is not an object, but a subject in international relations. International companies such as Huawei need a strong Europe to shape an inclusive tech-world of tomorrow. A world in which Europe leads on tech-regulation and in which new technologies are deployed in line with European values and principles.

The European Union can only be strong if its 27 Member States also stand up to its principles and do not give in to short-term pressures. The EU toolbox on 5G Cybersecurity is an intelligent and encompassing approach which gives EU countries appropriate time to come to their conclusions. This solid European method should not be undermined by third parties ahead of elections. Wherever European governments receive pressure these days to go down the path of potentially discriminatory actions violating EU law, I would like to tell them: take a deep breath. Do take your time. Do not rush into actions you might not have thought through.

Let me be clear: Huawei is deeply committed to Europe. We are here to stay and we will invest heavily in Europe’s ICT ecosystem. In the last 20 years, Huawei has decisively contributed to the successful digital transformation of societies all across Europe. Just look at Poland and Romania: in both countries Huawei has provided secure, fast and affordable telecom networks that are the backbone of the impressive economic growth both Poland and Romania have experienced in recent years. In Warsaw and in Bucharest, Huawei has set up large regional operations employing thousands of people.

Huawei has the know-how and the determination to team up with the European Union as a key partner to deploy global standards on Cybersecurity, to make the European Green Deal a reality and to partner with the continent’s automotive industry to jointly reinvent mobility.

I believe that in the not too distant future we will be looking back on the year 2020 as a moment of accelerated transition where some key players took a longer breath to take the right decisions when history called upon them. Take this deep breath and think for a moment before giving in to short-sighted pressure! "

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Cyber-espionage

EU countries test their ability to co-operate in the event of cyber attacks

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EU member states, the EU Agency for Cybersecurity (ENISA) and the European Commission have met to test and assess their co-operation capabilities and resilience in the event of a cybersecurity crisis. The exercise, organized by the Netherlands with the support of ENISA, is a key milestone towards the completion of  relevant operating procedures. The latter are developed in the framework of the NIS Co-operation Group, under the leadership of France and Italy, and aim for more coordinated information sharing and incident response among EU cybersecurity authorities.

Furthermore, member states, with the support of ENISA, launched today the Cyber Crisis Liaison Organization Network (CyCLONe) aimed at facilitating cooperation in case of disruptive cyber incidents.

Internal Market Commissioner Thierry Breton said: “The new Cyber Crisis Liaison Organization Network indicates once again an excellent cooperation between the member states and the EU institutions in ensuring that our networks and critical systems are cyber secure. Cybersecurity is a shared responsibility and we should work collectively in preparing and implementing rapid emergency response plans, for example in case of a large-scale cyber incident or crisis.”

ENISA Executive Director Juhan Lepassaar added: "Cyber crises have no borders. The EU Agency for Cybersecurity is committed to support the Union in its response to cyber incidents. It is important that the national cybersecurity agencies come together to coordinate decision-making at all levels. The CyCLONe group addresses this missing link.”

The CyCLONe Network will ensure that information flows more efficiently among different cybersecurity structures in the member states and will allow to better coordinate national response strategies and impact assessments. Moreover, the exercise organized follows up on the Commission's recommendation on a Coordinated Response to Large Scale Cybersecurity Incidents and Crises (Blueprint) that was adopted in 2017.

More information is available in this ENISA press release. More information on the EU cybersecurity strategy can be found in these Q&A and this brochure.

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