The European Union (EU) and its 27 member states are members of the WTO.
The EU is also a member to several multilateral and plurilateral agreements, including the Government Procurement Agreement, the Trade Facilitation Agreement, the Civil Aircraft Agreement, the Information Technology Agreement and the Pharma Agreement.
The EU is party to several bilateral and multilateral trade and partnership agreements with third countries. The European Commission’s website provides an overview of the current bilateral and multilateral trade agreements concluded by the EU, as well as those which are being currently negotiated.
The EU has adopted special trade regimes under which it grants trade preferences to developing and least-developed countries. Examples include: the Generalized Scheme of Preferences, the African Caribbean and Pacific Partnership Agreement and the Overseas Countries and Territories Decision.
The EU is currently negotiating free trade and partnership agreements with, inter alia, Australia, Indonesia, Mercosur, New Zealand and the Philippines.
On 30 June 2019, the EU and Vietnam signed a Free Trade Agreement (FTA) and an Investment Protection Agreement (IPA). The FTA entered into force on 1 August 2020; the IPA is still in the ratification process.
In December 2020, Mercosur and the EU reiterated at ministerial level their commitment to implementing the trade deal.
The Trade and Cooperation Agreement between the EU and the UK entered into effect on 1 May 2021. The Agreement contains preferential arrangements in areas such as trade in goods and in services, public procurement, aviation and road transport, energy, fisheries, social security coordination, law enforcement and judicial co-operation in criminal matters among others.
On 30 December 2020, the EU and China concluded in principle the negotiations on the Comprehensive Agreement on Investment (CAI). The annexes setting out the schedules of commitments were published on 12 March 2021. The aim of the CAI is to improve the access of EU operators to the Chinese market. It contains obligations concerning the transparency of subsidies and rules against forced technology transfers as well as environmental and labour commitments in relation to the effective implementation of the Paris Agreement and the International Labour Organization (ILO) Conventions. Due to ongoing issues related to, for example, sanctions imposed on EU MEPs, it is not anticipated that the CAI will be completed and ratified in the near term.
The EU will restart FTA talks with Australia in 2022.
Starting with the EU–Korea free trade agreement (FTA) signed in 2009, EU trade deals each include dedicated trade and sustainable development (TSD) chapters encompassing issues such as environment, labour rights, climate change and responsible business conduct. In the Commission's 2021 Trade Policy Review, the Commission signalled the early launch of a review of its 2018 action plan regarding the implementation and enforcement of these chapters, and held an exchange of views with the European Parliament in July 2021. An open public consultation to support the 15-point action plan review ended on 31 October 2021.
Pursuant to Article 3 of the Treaty on the Functioning of the European Union (TFEU), the EU has exclusive competence with regard to its customs union and its common commercial policy.
Article 31 TFEU establishes that common customs tariff duties shall be fixed by the Council on a proposal from the Commission. Furthermore, Article 33 TFEU foresees that the European Parliament and the Council take measures in order to strengthen customs cooperation between member states and between the latter and the Commission.
The European Commission’s Directorate-General for Tax and Customs Union (DG TAXUD) represents the EU in the World Customs Organisation (WCO) and is responsible for the negotiation and implementation of customs-specific agreements or other agreements with a customs component. This includes rules of origin, customs co-operation and trade facilitation chapters in Free Trade or Partnership Agreements, and customs enforcement provisions in relation to IP rights.
The core EU customs legislation is:
In accordance with Articles 3 and 5 UCC, national customs authorities implement the EU customs rules, impose and collect import and export duties, oversee goods in transit and under special customs procedures, and pursue customs and export violations.
National customs authorities are also responsible for issuing Binding Tariff Information (BTI) and Binding Origin Information (BOI) decisions upon a written request by an economic operator. The former determine the correct tariff classification of the goods whereas the latter certify their origin.
A list of the competent customs authorities in the 27 EU member states is available at DG TAXUD's website.
Regulation 2015/1843 (EU Trade Barrier Regulation) provides a complaint mechanism for EU exporters that experience discriminatory trade practices in third countries. EU companies can file market-access complaints via the Access2Markets portal, on DG Trade's website.
If the Commission initiates an investigation, exporters, importers and the representatives of the country subject to the investigation can take part and have certain procedural rights, including the inspection of files, notification of the findings of the investigation, and the possibility to comment thereupon.
Decisions adopted under Regulation 2015/1843 are published in the Official Journal of the European Union.
On 11 March 2021, Regulation 2021/444 established the Customs programme for co-operation in the field of customs for the period from 1 January 2021 to 31 December 2027. Article 3 of Regulation 2021/444 identifies the preparation and uniform implementation of customs legislation and policy, customs co-operation, and innovation in the area of customs policy as some of the main the objectives of the programme.
On 29 October 2021, the European Commission published the latest version of the Combined Nomenclature (CN), applicable as from 1 January 2022.
On 1 January 2022, full customs declarations and controls will apply to EU goods entering the UK (UK goods entering the EU have been subject to customs controls and export declaration requirements since 1st January 2021). Safety and security declarations will apply to those goods only as of 1 July 2022 in order to give businesses more time to adjust to the new procedures.
Pursuant to the Northern Ireland Protocol ("the Protocol"), Northern Ireland remains part of the EU's single market for goods, and trade in goods between Northern Ireland and the Republic of Ireland is not subject to customs checks. Since Northern Ireland continues to follow EU rules on product standards, customs controls have been applicable to goods entering Northern Ireland from England, Scotland or Wales since 1 January 2021.
So far, the UK government has suspended control checks on goods entering Northern Ireland from other parts of the UK through the granting of so-called "grace periods" in certain areas. The EU and the UK are currently engaged in talks in order to reach compromises that allow a flexible application of the Protocol and a reduction of the controls on goods coming from England, Wales and Scotland into Northern Ireland.
Restrictive measures are adopted in the framework of the Common Foreign and Security Policy (CFSP) by unanimity by the Council of the EU on the basis of proposals from the High Representative of the Union for Foreign Affairs and Security Policy and following examination in the relevant Council working groups.
EU sanctions are either implementations of UN sanctions, additional reinforcements of UN sanctions (by applying stricter and additional measures – eg, vis-à-vis DPRK), or autonomous sanctions (eg, vis-à-vis Syria, Venezuela, Ukraine/Russia).
Restrictive measures imposed by the EU can target governments of third countries, non-state individual and legal persons or certain industry sectors. They can take the form of restrictions on exports or on engaging in certain activities or with certain natural or legal persons (see further 3.5 List of Sanctioned Persons and 3.6 Sanctions against Countries/Regions).
Due to the division of powers between the EU and its member states, EU sanctions usually consist of a Council Decision and a Council Regulation. The Decision is binding for the member states and obligates them to implement those types of sanctions for which they have exclusive competences (eg, military sanctions and travel bans). The Regulation is binding on all EU citizens and implements those sanctions that are within the competence of the EU (ie, economic sanctions). The CFSP Council Decision and the Council Regulation are usually adopted together to allow both legal acts to produce their effects at the same time.
The enforcement of EU sanctions lies with member state competent authorities (customs, finance, export control). Member states must have in place effective, proportionate and dissuasive penalties, and enforce them in cases of violations. The European Commission is responsible for ensuring the uniform application of sanctions.
EU sanctions usually apply:
EU Regulations 2580/2001, 881/2002, 2016/1686 and 2020/1998 specifically target parties for engaging or facilitating terrorist activities and human rights violations. In addition, sanctions imposed on a specific country usually also contain party-related sanctions.
The restrictions imposed on sanctioned parties usually include a prohibition to travel to the EU (if they are not EU citizens), a freeze of assets within the EU, and an obligation for all legal and natural persons located in the EU not to provide funds or economic resources to the sanctioned persons.
Parties are sanctioned via Council Regulation and/or Decision and notified of being sanctioned either through direct communication (ie, by letter, if their address is known) or by publication of a notice in the Official Journal of the European Union.
Sanctioned parties can appeal to the European Courts.
The EU sanctions map provides a comprehensive overview of the EU sanctions in force.
The European Commission's Directorate General for Financial Stability, Financial Services and Capital Markets Union maintains a consolidated list of persons, groups and entities subject to EU financial sanctions.
The EU generally does not impose total embargoes. Sanctions against countries usually target selected products and sectors. Product groups frequently targeted include military items, dual-use items, internal repression equipment, telecommunication and internet reception equipment, and equipment for key industries of the respective country. Sectors often targeted include the finance sector and core industries of the subject country – oil and gas, mining, etc. The EU can also impose restrictions on investments and financing activities. The sanctions against Syria, Russia and North Korea, for instance, are among the most comprehensive ones. The EU sanctions map provides an overview of the restrictions under each regime.
Please refer to the responses to questions 3.5 List of Sanctioned Persons and 3.6 Sanctions Against Countries/Regions.
Generally, the EU refrains from adopting legislative instruments with extra-territorial application. Thus, the EU restrictive measures only expressly apply in situations where links exist with the EU (see response to 3.4 Persons Subject to Sanctions Laws and Regulations). However, in practice, it is possible that certain requirements (eg, licences or end-user declarations) have a secondary sanctions-like effect on the third-country end-user or recipient.
The enforcement of EU sanctions lies with the member states. Depending on the specific sanctions regime and the national legislation of the EU member states, as well as the gravity of the violation, penalties can be administrative or criminal and range from warnings to fines and prison sentences.
At EU level, very severe or repeated violations of sanctions could lead to the designation of the violating party as a sanctioned party.
The competent authorities of the member states can grant specific exemptions or licences for otherwise prohibited activities if this is provided for in the relevant sanctions decisions and regulations.
Sanctions implemented in the form of EU Regulations (eg, secondary EU law) have direct effect and are binding law in all member states. EU citizens therefore have to comply with EU sanctions in the same manner as with any other laws.
Sanctions regulations, however, regularly contain language that actions by natural or legal persons, entities or bodies shall not give rise to liability if they did not know, and had no reasonable cause to suspect, that their actions would infringe the measures set out in the sanctions regime. However, as there is a general expectation that EU citizens are acquainted with the laws that affect them, it would be difficult to rely on this defence in administrative or criminal proceedings.
The European Commission is responsible for ensuring the uniform application of sanctions. Member states have an information exchange including regarding national (enforcement) measures taken and judicial decisions, on the freezing of accounts, and derogations granted.
Certain EU sanctions regulations contain language requiring EU natural and legal persons, entities and bodies to provide information which would facilitate compliance with the applicable sanctions (eg, information on accounts and amounts frozen) to the competent authority of the member state and (directly or through the member state) to the European Commission. In particular, this obligation concerns banks, insurance companies and fund managers in relation to any accounts or assets held for sanctioned parties.
As a general rule, the European Union does not recognise the extra-territorial application of laws adopted by third countries and considers such effects to be contrary to international law. In 1996, in order to protect EU operators from the extra-territorial application of third country laws, the EU adopted the EU Blocking Statute (Council Regulation (EC) No 2271/96).
On 7 December 2020, the Foreign Affairs Council adopted the EU Global Human Rights Sanctions Regime (Council Decision (CFSP) 2020/1999 and Council Regulation (EU) No 1998/2020), which seeks to address serious human rights violations and abuses worldwide. To do so, it can impose a travel ban and an asset freeze on individuals and entities responsible for or involved in violations and abuses such as crimes against humanity, torture, sexual and gender-based violence or the suppression of the freedom of religion or belief, and order natural and legal persons of EU citizenship or resident in the EU not to provide funds or economic resources to listed parties.
In July 2020, the Council imposed the first-ever sanctions in relation to cyber-attacks (see Decision 2020/1127 and Implementing Regulation 2020/1125). The legal framework for targeted restrictive measures against those responsible for cyber-attacks was adopted in May 2019. The sanctions imposed include a travel ban and an asset freeze. In addition, EU persons and entities are prohibited from making funds available to those listed.
In its Communication of 19 January 2021, the European Commission announced that it would consider amending the Blocking Statute to further deter and counteract the unlawful extra-territorial application of sanctions to EU operators by countries outside the EU. This amendment would also streamline the application of the current EU rules, including by reducing compliance costs for EU citizens and businesses.
Under Article 263 UCC, goods intended for export are subject to an export declaration. Furthermore, certain goods, such as military items listed in the national military lists, dual-use items listed in Annex I to Regulation 2021/821, waste and endangered species, require a licence before their export.
Pursuant to Article 3 TFEU, the European Union has exclusive competence with regard to its common commercial policy. Article 207 (2) TFEU authorises the European Parliament and the Council to adopt regulations setting up an EU regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items.
The European Commission, DG TRADE, is responsible for administering and managing the EU's export controls regulation, proposing legislative changes and updates of control lists, and co-ordination between member states.
EU member states may also impose additional (stricter) export controls. Information on additional national rules is available on DG TRADE’s website.
Under Article 25a of Regulation 2021/821, the Council may authorise the Commission to negotiate with third countries agreements providing for the mutual recognition of export controls of dual-use items covered by that Regulation, and in particular to eliminate authorisation requirements for re-exports within the territory of the EU.
The national export control authorities of the EU member states are responsible for the licensing procedure. Information on the national authorities responsible for export controls is available on DG TRADE’s website.
The enforcement of export controls is usually done by EU national customs authorities.
EU export controls apply to all exports from the territory of the EU. EU persons might also be subject to EU or member states' export controls outside the EU – eg, when providing technical assistance or brokering services.
Security-based export controls apply to military items, to listed dual-use items, to all items subject to certain end-uses (eg, use in relation to weapons of mass destruction or missiles carrying such weapons, to military uses in countries subject to military embargos, use in relation to terrorism and human rights violations), to cyber-surveillance items, to certain brokering activities, to certain transit operations, and to certain forms of technical assistance. Member states may impose additional licensing requirements.
Please refer to 3.5 List of Sanctioned Persons.
Please see response to 4.4 Persons Subject to Export Controls.
At the core of the EU's security-based export controls are the national/EU military lists and the EU dual-use list set out in Annex I of Regulation 2021/821. These lists reflect international control regimes (Wassenaar Agreement, Nuclear Suppliers List, Australia Group, Missiles Technology Control Regime).
Military items and highly sensitive dual-use items (Annex IV of Regulation 2021/821) also require a licence for intra-EU transfers from one member state to another (ie, not only for export outside the EU).
Additional restrictions on exports and intra-EU transfers exist, inter alia, for waste, endangered species, pesticides, biocides, food and chemicals.
Infringements of export controls can lead to administrative sanctions, criminal sanctions, or both, depending on the seriousness of the violation and the specific laws of the respective EU member state. Severe violations are normally subject to high fines and could lead to prison sentences for the operators responsible, whereas less severe violations could imply revocation of export privileges (eg, global licences), warnings and fines.
The EU and its member states usually have three types of licences:
Companies engaging in exports of sensitive items are required to know and comply with the applicable controls, and to have a robust internal compliance system in place. While the latter is not a general legal requirement, it is a requirement for the use of certain general licenses and regularly for the granting of global licences.
If an export requires a licence, companies must obtain approval from the national export control authorities prior to the export. The use of general licences must be reported periodically to the national authorities.
On 11 June 2021, the EU published a recast of its dual-use controls, previously set out in Regulation 428/2009. Regulation 2021/821 contains new controls on cyber-surveillance and advanced computing, on technical assistance, and targets terrorism and human rights violations. The regulation introduces new general licences for intra-group software and technology transfers and for the export of encryption software. It also improves the information exchange between licensing authorities and the Commission.
On 29 September 2021, the EU-US Trade and Technology Council (TTC) met for the first time. One result was the Statement on Export Control Cooperation by which the EU and the USA recognise the importance of effective controls on trade in dual-use items for their joint security and foreign policy interests, identify a multilateral approach to export controls as the most effective for protecting international security, and reiterate their commitment to promoting a multilateral rules-based trade and security system founded on transparency, reciprocity and fairness supporting a global level playing field.
There are currently no significant pending changes to the EU export regulations.
Trade defence investigations (TDI – anti-dumping, anti-subsidy, safeguards) are conducted by the European Commission's Directorate General for Trade (DG TRADE). TDI measures are imposed by Commission Regulation after consultation with the EU member states in the context of the EU Council.
The EU's anti-dumping and anti-subsidy rules are set out in Regulations 2016/1036 and 2016/1037, respectively. The EU's safeguard rules are set out in Regulations 2015/478 and 2015/755, respectively.
The European Commission monitors the application of TDI measures and can re-open investigations or initiate reviews if measures need adapting. The member states' customs authorities enforce compliance with TDI measures upon importation and collect TDI duties. National customs authorities can also conduct administrative and criminal investigations and impose fines in cases of violations.
The European Commission can initiate new investigations and certain reviews ex officio. However, investigations are usually initiated pursuant to a request from the EU industry.
New TDI investigations and reviews (eg, interim, expiry, anti-circumvention, absorption, newcomer, suspension) can be requested by interested parties. Certain reviews are subject to standing requirements and/or time limits.
Exporting producers, industry associations and government bodies of the country subject to the investigation can participate in EU TDI investigations. Other non-EU parties can participate if they can show a legitimate interest in the case. The notice of initiation of an investigation is published in the EU Official Journal and invites interested parties to come forward within a certain timeframe.
A TDI investigation is usually opened following a complaint/request by the EU industry. For new investigations, expiry reviews and certain other procedures, a standing requirement exists to ensure that the investigation has sufficient support from the EU industry producing the subject product (at least 25% of total EU production must support the complaint/request and EU producers representing more than 50% of the EU production must not express opposition).
A new complaint must include prima facie evidence of dumping/subsidisation, injury and a causal link between the allegedly dumped/subsidised imports and the alleged injury. A review request must contain sufficient prima facie evidence to support the underlying request.
Following the lodging of a new complaint, the Commission has 45 days to initiate the investigation or reject the complaint. Provisional duties may be imposed no later than eight (AD) or nine (AS) months from the initiation of the proceedings. The investigations must be concluded within 14 months (AD) or 13 months (AS). Reviews can have different or even no statutory deadlines for their opening. Usually reviews must also be concluded within nine or 15 months, depending on the type of review.
Regulations imposing provisional or definitive AD or CVD duties, and regulations or decisions accepting undertakings or terminating investigations or proceedings, are published in the EU Official Journal.
Under the EEA Agreement, the use of TDI measures between the parties is generally excluded for the sectors covered by the agreement. Fishery and agriculture products are not covered by the exclusion.
AD and CVD duties are normally applicable for a period of five years. Before the end of the five-year period, EU producers may request an expiry review, which may result in measures being extended or repealed.
Definitive safeguard measures may last up to four years. Where they exceed three years, they must be reviewed at mid-term and can be extended for up to eight years in total.
Upon request or of its own motion, the Commission can review existing measures to ensure their continued effectiveness/need. An expiry review is usually initiated following a request by the EU industry which must be made no later than three months before the expiry of the measures. The request must contain sufficient prima facie evidence that the expiry of the measures would result in a continuation or recurrence of dumping/subsidisation and injury. Expiry review investigations must be concluded within 15 months of initiation. The measures remain in force pending the outcome of that review.
Regulations and Decisions on TDI measures can be appealed under Article 263 TFEU before the EU General Court within two months of their publication in the EU Official Journal.
The complainants (EU producers and their associations) and exporting producers in the country subject to the measures that participated in the administrative proceedings generally have standing to bring a direct action. Judgments of the General Court can be further appealed to the Court of Justice of the European Union (ECJ). Importers and users usually have to challenge TDI measures via national courts and a preliminary ruling request to the ECJ under Article 267 TFEU.
In October 2020, the European Commission published a report on significant government-induced distortions in the economy of Russia for the purpose of the EU’s trade defence proceedings. The report focuses on Russia’s macro-economy, the main manufacturing production factors, such as labour and energy, and certain specific sectors of the economy, including steel, aluminium and chemicals. Country reports provide evidence that can be used by industry to request application of the specific EU anti-dumping methodology for distorted economies to their particular case and/or cost adjustments in anti-dumping calculations.
In June 2021, the European Commission extended the EU's safeguard measures on imports of certain steel products for three additional years, starting from 1 July 2021. The initial safeguard measure was introduced in July 2018 to protect the EU steel market against trade diversion, following the US decision to impose general duties on imports of steel into the US market. The EU measures take the form of Tariff Rate Quotas reflecting traditional trade flows from third countries, above which a 25% duty is levied on imports.
In October 2021, the Commission adopted definitive AD measures on imports of aluminium flat-rolled products from China. At the same time, the Commission adopted a decision suspending the application of these measures for a period of nine months due to the existence of temporary and exceptional changes in market circumstances (related to a supply shortage) that occurred after the investigation period.
There are currently no significant pending changes in this area.
EU member states are responsible for the adoption of mechanisms to screen foreign direct investments in their territory on the grounds of security or public order.
At EU level, Regulation 2019/452 establishes a framework for the screening by member states of foreign direct investments into the EU on the grounds of security or public order, and a mechanism for cooperation between member states, and between member states and the Commission, with regard to foreign direct investments likely to affect security or public order.
Pursuant to Article 6 of Regulation 2019/452, member states must notify the Commission and other member states of any foreign direct investment in their territory that is undergoing screening by providing information about, inter alia, the ownership structure of the foreign investor, the approximate value of the investment or the funding of the investment and its source. Furthermore, by 31 March of each year, member states must submit to the Commission an annual report covering the preceding calendar year, which is to include aggregated information on foreign direct investments that took place in their territory.
Further, Regulation 2019/452 allows the Commission to issue opinions when it considers that an investment poses a threat to the security or public order of more than one member state, or when an investment could undermine a project or programme of interest to the whole EU. Regulation 2019/452 also foresees the possibility for a member state which considers that a foreign direct investment in another member state is likely to affect its security or public order to provide comments to the member state in question.
A list of member states which had notified their screening mechanism to the European Commission as of 14 July 2021 together with links to the applicable norms and contact details of the competent authorities are available at DG Trade's website.
See response to 6.1 Investment Security Mechanisms.
Within the EU, the assessment of investments on grounds of security and public order is conducted by each member state pursuant to its applicable national law. The paragraphs below summarise, as examples, the rules governing the assessment of investments on the grounds of security or public order in Germany and France.
Under Sections 55 to 62 of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung), the German Federal Ministry for Economic Affairs and Energy can assess whether there will be a likely effect on the public order or security of the Federal Republic of Germany, of another member state of the EU or in relation to projects or programmes of EU interest, if a non-EU resident directly or indirectly acquires a domestic company or a stake in a domestic company.
The decision to clear or prohibit the investment depends on factors such as whether the domestic company recipient of the investment operates critical infrastructure, provides cloud computing services, holds a licence for providing telematics infrastructure components or is a company of the media industry which contributes to the formation of public opinion.
Similarly, under Article L. 151-2 of the French Financial and Monetary Code (Code Monétaire et Financier), the establishment and liquidation of foreign investments in France may be subject to prior authorisation if considered appropriate to protect national interests.
Furthermore, under Article L. 151-3, a foreign investment in France which relates to the exercise of public authority, to activities likely to jeopardise the public order, public safety or national defence interests, or to the production or marketing of arms, munitions, or explosive powders or substances, is subject to prior approval by the Minister of economic affairs.
EU member states such as Germany or France require foreign investors to file an application for authorisation or notify the competent authority for the purposes of assessing the effect on public order or security of the investment in question.
Under Section 55a of German Foreign Trade and Payments Ordinance, the conclusion of a contract governed by the law of obligations on the acquisition of a domestic company by a non-EU citizen must be reported to the Federal Ministry for Economic Affairs and Energy in writing or electronically without delay following the conclusion of the contract. The report shall provide information about the acquisition, the acquirer and the domestic company to be acquired and the shareholding structures of the acquirer and describe the main features of the fields of business in which the acquirer and the domestic company to be acquired are active.
Pursuant to Article L.151-3, foreign investments likely to affect national interests are subject to an authorisation requirement (see response 6.2 Agencies Enforcing Investment Security Measures). Furthermore, Article L. 151-3-1 of the French Financial and Monetary Code foresees that when an investment has been carried out without prior authorisation, the Minister of economic affairs may order the investor in question to file an application for the authorisation of that investment.
EU member states such as Germany and France foresee exemptions from investment security measures in cases of transactions concluded by companies belonging to the same group or controlled by the same entity.
For instance, under Section 65 of the German Foreign Trade and Payments Ordinance, the investment assessment would not take place if the transaction leading to the acquisition of a domestic company is concluded between companies whose shares are held in full by the same controlling company and all contracting parties have their headquarters located in the same third country.
Similarly, under Article 151-7 of the French Financial and Monetary Code, foreign investors are exempt from the obligation to file the application for authorisation in cases where the investment is made between entities belonging to the same group, where the investor exceeds 25% of the voting rights in the capital of an entity over which it has previously acquired control, or if the investor acquires control of an entity over which it has previously exceeded the threshold of 25% of the voting rights.
The infringement of provisions governing investment security mechanisms can be subject to criminal and administrative sanctions.
For instance, Section 80 of the German Foreign Trade and Payments Ordinance categorises as criminal offences the unlawful exercise of voting rights by an acquirer or the disclosure of company-related information in violation of Section 59a of the same Ordinance.
Pursuant to Article 151-3-2 of the French Financial and Monetary Code, a failure to comply with investment security requirements may lead to the imposition of financial penalties.
Under the national law of each EU member state, foreign investors may be asked to cover certain costs arising from the authorisation procedure of their investments.
For instance, under Section 59 the German Foreign Trade and Payments Ordinance, the costs of reports produced by independent experts assessing the foreign investors' compliance with certain commitments or obligations are borne by the parties subject to those obligations.
On 13 July 2020, Regulation 2019/452 was amended to add the "Preparatory Action on Preparing the new EU GOVSATCOM Programme", the "Preparatory Action on Defence Research" and the "European Joint Undertaking for ITER" to the list of projects or programmes of EU interest.
Furthermore, within the last 12 months, several member states have denied authorisations to foreign investments due to national security concerns.
For instance, on 18 December 2020, the French Authorities denied the US company Teledyne the authorisation to acquire Photonis, a French company specialised in night vision technologies used by the French army.
On 31 March 2021, the Italian Council of Ministers blocked the sale of 70% of the Italian company LPE to the Chinese company Shenzhen Investment Holdings Co. LPE is active in the development of epitaxial reactors used for the production of semiconductors, an activity considered of strategic importance by the Italian Government.
Lastly, on 1 May 2021, the Act on Screening of Foreign Direct Investments of the Czech Republic entered into force, and on 11 May 2021, the Danish Ministry of Industry, Business and Financial Affairs published the Act on screening of certain foreign direct investments in Denmark.
Several EU member states, such as Belgium, Luxembourg and Ireland, are expected to introduce national investment screening regimes within the next year.
The EU has very strict controls on state aid which are set out in the TFEU. State aids are allowed only in strictly defined circumstances to pursue particular public policies, such as environmental protection, the strengthening of SMEs, or regional development. The EU state aid rules aim at protecting fair competition on the domestic market and not at reducing imports or encouraging domestic production.
The EU and its member states have special legislation on product (safety) standards. The European standardisation organisations (ESOs) and national standardisation organisations have also adopted ample standards for products and services.
EU standards and technical requirements are adopted in order to guarantee a certain level of quality, safety, and reliability of goods and services and do not aim to reduce imports and/or encourage domestic production.
The EU has high, strict and comprehensive sanitary and phytosanitary legislation – for example,:
The aim of the EU sanitary and phytosanitary measures is to reduce or eliminate the possible risks of animal, plant and public health threats, as well as animal and plant diseases being introduced into the EU by goods coming from non-EU countries. They are not aimed at reducing imports and/or encouraging domestic production.
The matter is not applicable in this jurisdiction.
The matter is not applicable in this jurisdiction.
The matter is not applicable in this jurisdiction.
In the EU, product names can be granted a geographical indication (GI) if they have a specific link to the place where they are made. The GI recognition enables consumers to trust and distinguish quality products while also helping producers to market their products better. Products that are under consideration or have been granted GI recognition are listed in quality products registers. The registers also include information on the geographical and production specifications for each product.
Other EU quality schemes emphasise the traditional production process or products made in difficult natural areas such as mountains or islands.
The EU is also one of the main supporters of negotiations on geographical indications in the WTO’s Doha Development Agenda and negotiates bilateral GI protection rules with its trading partners.
The purpose of the EU quality policy and GI protection measures is to protect the names of specific products to promote their unique characteristics and does not aim at reducing imports from third countries and/or encouraging domestic production.
On 5 May 2021, the European Commission adopted a proposal for a regulation on foreign subsidies distorting the internal market. Under the proposed regulation, the Commission will have the power to investigate financial contributions granted by non-EU governments to companies active in the EU. If the Commission finds that such financial contributions constitute distortive subsidies, it can impose measures to redress their distortive effects – these include a range of structural or behavioural remedies, such as the divestment of certain assets or providing access to infrastructure. The European Parliament and the Council are reviewing the Commission's proposal in an ordinary legislative procedure with a view to adopting a final text of the Regulation. Once adopted, the regulation will be directly applicable across the EU.
Improving the EU's Trade Toolkit
When the current set of European Commissioners took office, an important priority was the development of an EU trade policy built around the concept of "open strategic autonomy". A key focus of that initiative has been to broaden and strengthen the EU's trade toolkit. This has been carried out through an expansive approach to the application of existing anti-subsidy rules and a variety of proposals for new or revised EU legislation, as well as in discussions with trading partners on ways to make international trade rules more conducive to sustainable development, as discussed further in the following sections.
First EU anti-subsidy measures in relation to Chinese subsidies granted outside China
In an expansive approach to the application of existing trade defence rules, the European Commission imposed countervailing duties in 2020 on EU imports of glass fibre fabrics (GFF) and glass fibre reinforcements (GFR) from Egypt. Those cases concerned two related Egyptian subsidiaries of a state-owned Chinese building materials conglomerate which were set up in 2013 with support from both the Chinese and Egyptian governments, in order to avoid payment of EU anti-dumping and anti-subsidy duties on direct GFR imports from China.
In both cases, the European Commission not only imposed countervailing measures on subsidies granted by the Egyptian government but also subsidies that could ultimately be traced back to the Chinese government. The rationale was that the Egyptian government had acknowledged and adopted the Chinese subsidies as its own and that they could therefore be attributed to the Egyptian government in accordance with Article 11 of the ILC Articles on State Responsibility.
Proposals for New or Revised EU Legislation
Reform to the EU's public procurement rules
The EU institutions are finalising a proposal for an "International Procurement Instrument" (IPI), establishing new procurement rules for non-EU participants in EU tenders. The changes will increase the requirements for foreign companies to participate in EU tenders when their national governments do not allow EU companies to participate in national tenders.
The European Commission estimates that half of the global procurement market is closed to foreign bidders and greater access could more than double EU procurement exports, from EUR10 billion to EUR22 billion annually. The new IPI therefore aims to counterbalance restrictive norms in other jurisdictions such as the Buy America Act, which allows public bodies to prioritise domestic companies, and China's restrictions on selling services in its domestic market. In addition, the new IPI is structured to minimise the administrative and budgetary burden upon the member states' contracting authorities and to take into account the specificities of the least developed countries and European small and medium enterprises.
The Commission made a first IPI proposal in 2012 and a revised proposal in 2016. However, it was not until June 2021 that EU member states in the Council of Ministers agreed their negotiating position, and the European Parliament’s International Trade Committee announced its position on 30 November 2021. The negotiations between the Commission, the Council and the Parliament to arrive at a final piece of agreed legislation are expected to conclude by the spring of 2022.
Proposal for an EU Regulation on distortive foreign subsidies
On 5 May 2021, the European Commission adopted a proposal for a Regulation on foreign subsidies distorting the internal market. Under the proposed Regulation, the Commission would have the power to investigate financial contributions granted by non-EU governments to companies active in the EU. If the Commission finds that such financial contributions constitute distortive subsidies, it would be able to impose measures to redress their distortive effects, including structural or behavioural remedies, such as the divestment of certain assets or providing access to infrastructure.
A major limitation of the proposal as drafted by the Commission is that it would not allow the use of the new tool for sectors which produce goods. There are also concerns about evidentiary burdens and the wide discretion of the Commission.
The European Parliament and the Council are reviewing the Commission's proposal in an ordinary legislative procedure with a view to adopting a final text of the Regulation. Once adopted, the Regulation will be directly applicable across the EU.
Proposal for an EU anti-coercion instrument
The Commission carried out a public consultation on a potential proposal for an anti-coercion instrument in early 2021, and its proposal is due to be issued in December 2021.
Based on the questions posed in the consultation phase, there is some concern that the scope of the instrument would limit actionable economic coercion to general trade or investment restrictions against the EU or individual member states, without covering, for example:
In addition, economic coercion could further include any measures taken in retaliation for EU government measures (such as, for example, EU trade defence investigations and/or measures or measures taken under the envisaged Foreign Subsidies Instrument) or for actions of EU operators in support of EU government measures, and should in any event be expressly identified as non-exhaustive.
Besides the scope concerns, there are concerns about limitations to the range of investigative powers and possible countermeasures.
Bilateral Co-operation to Make International Trade Rules More Conducive to Sustainable Development
EU–US trade co-operation
Although there have been major bilateral trade frictions in the last several years – most notably the move of several EU member states to impose digital taxes, and the US move to impose national security safeguards on steel and aluminium imports from all trading partners, including the EU – there continue to be joint trans-Atlantic initiatives to work together to meet global trade challenges.
In September 2021, the EU–US Trade and Technology Council held its first meeting and discussed common objectives and co-operation in relation to a broad range of topics, such as investment screening, trade-distorting practices in non-market economies and the international protection of labour rights.
With regard to investment security, the EU and the USA highlighted the importance of opening their markets to foreign investments but acknowledged the need to develop and implement strong investment screening mechanisms adequate to cope with national security and public order concerns. The two parties concluded that their investment screening mechanism should be guided by the principles of non-discrimination, transparency, predictability, proportionality and accountability in line with the OECD Guidelines for Recipient Country Investment Policies Relating to National Security.
In the field of international trade, the EU and the USA both believe that WTO rules should be updated to deal more effectively with industrial subsidies and unfair behaviour of state-owned enterprises. Furthermore, the EU and the USA also intend to share information and develop strategies for responding to distorting non-market practices such as forced technology transfers and discriminatory treatment of foreign companies in support of industrial policy objectives.
In addition, the EU and the USA intend to identify and avoid unnecessary barriers to trade in products or services derived from new and emerging technologies. They aim to promote the highest level of openness and transparency possible, while at the same time respecting each other's regulatory autonomy.
The EU and the USA also intend to support the protection of fundamental labour rights and combat child and forced labour through, inter alia, the introduction of compulsory clauses in their free trade agreements (FTAs), as well as in international and multilateral fora.
Enforcement of EU FTA sustainable development chapters
Starting with the EU–Korea free trade agreement (FTA) signed in 2009, EU trade deals each include dedicated trade and sustainable development (TSD) chapters encompassing issues such as environment, labour rights, climate change and responsible business conduct. In the Commission's 2021 Trade Policy Review, it signalled the early launch of a review of its 2018 action plan regarding the implementation and enforcement of these chapters, and held an exchange of views with the European Parliament in July 2021. An open public consultation to support the 15-point action plan review ended on 31 October 2021.
In sum, the EU has started several initiatives that aim at creating a more level international playing field for EU industries. It will be important that these tools are implemented, interpreted and applied in a manner that allows them to address unfair trading practices both effectively and efficiently.