True to form, Vestager — in partnership with Internal Market Commissioner Thierry Breton — is now aiming at a new antitrust target: unfair government subsidies from outside the EU. (They’re illegal inside the bloc, although the rules have been temporarily relaxed because of the pandemic.) Historically the preserve of trade lawyers and diplomats shuttling between foreign capitals and the World Trade Organization in Geneva, these subsidies are now seen as a competition problem that the EU’s executive arm in Brussels must address. And it wants expanded powers to do so.
Officially, the idea is to scrutinize government financing from any country outside the EU that would give companies inside the bloc an unfair advantage.
But just as Vestager’s focus on technology companies seemed deliberately targeted at the U.S., this proposal looks squarely aimed at China, whose rapid rise has become a global problem.
There’s an element of making up for lost time here. Chinese firms have poured an estimated 160 billion euros ($180 billion) of investment into the EU over the past decade, according to research firm Rhodium Group, with state-owned enterprises at one point accounting for the lion’s share (it has since fallen). What was initially cheered as a welcome source of funding after the financial crisis has become a source of anxiety over an increasingly one-sided relationship.
German robotics firm Kuka AG is now China-owned; Chinese rail powerhouse CRRC is seen by Alstom SA and Siemens AG as a competitive threat; and telecoms-equipment maker Huawei Technologies Co. has been accused of profiting from as much as $75 billion in Chinese state aid, according to the Wall Street Journal. (The company denies it.) Back in 2013, then-EU Commissioner Karel De Gucht accused firms including Huawei of anti-competitive behavior driven by access to cheap capital, but plans for an investigation were shelved.
The case for giving new powers to Vestager’s division in this area, including the ability to issue fines, is that nobody else has been able to do much about it so far. The global trading system has been defenseless in the face of this tide of state support that helps companies undercut local competition. The WTO’s mechanisms are clunky and in need of reform. U.S. President Donald Trump’s barrage of trade tariffs has alienated allies while failing to fix the underlying problem. An encouraging deal on reforming the WTO was signed in January by the EU, U.S. and Japan, but it’s an early step.
Paired with the EU’s foreign-investment screening tool, an anti-subsidy push would help Europe exert more political clout against Beijing. Under Xi Jinping, China has been a more assertive geopolitical actor, expanding its influence into Europe with its Silk Road initiative and technology investments. The Covid-19 crisis has exposed the extent of its supply-chain dependence on China and just how ineffective it is diplomatically. There’s now an opportunity to try to rebalance the relationship, which will be one of the priorities when Germany takes over the EU presidency in July, according to Eric-Andre Martin of French think tank IFRI.
Still, there are some big unknowns. Hunting down subsidies isn’t straightforward, and the proposed powers would need buy-in from companies and its 27 member states. They might also aggravate trade wars rather than defuse them — the U.S. and the U.K. could technically be subject to these powers, setting up the risk of future clashes that might bury all hopes of reform. This mechanism might be seen by the EU as one way to keep the Brits’ trade practices under scrutiny after Brexit.
For now, though, we should take the proposal at its word. The aim isn’t to punish all subsidies but decide on a case-by-case basis whether they distort the market or not. If the EU move leads to tougher oversight of state aid payments globally, that would be a worthwhile result, according to Bloomberg Intelligence analyst Aitor Ortiz.
After unity within the EU almost completely broke down early in the Covid-19 crisis, this kind of proposal helps answer a constant existential riddle: Just what is the bloc for? If the 750 billion-euro pandemic recovery plan shows the economic benefits of pooling resources, a creative push to punish trade distortions shows how it can protect its market abroad. If Vestager’s stance is anything to go by, Europe is serious about asserting itself on the world stage.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.
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