This week the Norwegian Australian Chamber of Commerce President Sophia Demetriades participated in the Council’s recent Business Roundtable with Dr Markus Beyrer, Director General of BusinessEurope.

 

In the wake of the US’s Industrial Relations Act (IRA) and the EU’s response, Markus Beyrer provided an update on the policy landscape in the EU, implications for the international trade and investment environment, and the key risks and opportunities for businesses in Australia and Europe.

 

The Director-General began by reaffirming the importance of the EU remaining an open economy and competitive economy, while undergoing the transformation to net zero. Addressing the reaction in the EU to the US’s IRA, and subsequent transatlantic tensions, he noted the support for the objectives of the plan while highlighting concerns over its the discriminatory elements posing an existential threat to EU industries. After facing a series of global crises, he underlined the seismic impact of the war in Ukraine on Europe, most acutely for energy prices. At the peak in August 2022, Europe was experiencing an increase of gas prices of 1100% as compared to 200% in the US and 100% in Japan.

 

The combination of these two asymmetric shocks has necessitated a comprehensive reflection on EU industrial competitiveness and FDI attractiveness to address the pull factor of the IRA, as well as the significant push factors. The most impactful of which are the long-term rise in energy costs (still significantly higher than competitors out to 2025) and significantly higher regulatory burden for companies. With regard to the latter, he noted the fall in FDI of 66% between 2019-2021, as compared to a 63% increase for the US, coming pre-energy crisis. To address the decline in competitiveness, BusinessEurope has been advocating for four key elements:

 

1. Less and better regulation – Positive recent developments include the commitment to new competitiveness checks for all new legislation (including looking at the cumulative impact) and the development of a proposal to reduce reporting requirements by 25% (to be delivered in Autumn).
2. Secure energy supply at competitive prices – In addition to the investment in renewables already underway, the Commission is now seeking to revise the electricity market design with initiatives designed to reduce the exposure of industry and consumers to price volatility.
3. A broad industrial strategy flanking the European Green Deal - In February 2023, the Commission unveiled its Green Deal Industrial Plan, followed by the Net-Zero Industry Act and the Critical Raw Materials Act. These will focus on creating the enabling environment (including reducing red tape and fast-tracking procedures) to achieve a target of at least 40% of clean technologies manufactured in the EU by 2030 and to boost domestic production, ramp up recycling and diversify the supply chain of raw materials in the EU. Importantly, imports of critical minerals should not be disadvantaged as the EU will continue to rely on third countries for roughly 75% of supply.
4. Well calibrated state aid rules – In response to the IRA, the EU has adopted a new Temporary Crisis and Transition Framework which will allow Member States to match aid from third countries, where there is a risk of investments being diverted away from Europe. The measure will be targeted, operational for limited time (to 2025), and includes provisions to preserve the level-playing field in the single market. Additionally, a recent deal reached between the EU and US will see a transparency instrument created to avoid subsidy shopping.

 

Finally, Dr Beyrer underlined the need for an ambitious trade agenda to support the EU’s international competitiveness, access to the inputs needed for industry, export opportunities, and risk mitigation and diversification efforts. He argued that the EU needed to ensure the better use of existing trade agreements, ratify concluded agreements, and conclude negotiations with Australia before the European summer break.

The roundtable discussion included topics included financing the green industrial agenda and the possibility of a European Sovereign Fund; the negotiations between the EU and the US to find solutions to key discriminatory elements of the IRA, including a critical raw materials agreement to afford the EU the same conditions as US FTA partners; the importance of the interoperability of international regulation and common global standards; the politics around energy policy in Europe, including around the classification of fuel sources; potential impacts of Europe’s extraterritorial regulations and response to the IRA on Australian business; among other topics.