On 19 January, the European Parliament adopted new rules widening the scope of the EU’s powers to enforce countermeasures in international trade disputes concerning services and intellectual property. The initiative is part of the Commission’s efforts to modernise its trade-defence toolbox in the face of a prolonged stalemate in the WTO Appellate Body. It expands EU trade-protection mechanisms already enshrined in Regulation (EU) No 654/2014, the “Trade Enforcement Regulation”.
Brussels’ enhanced trade leverage
This legislative initiative is expected to strengthen the EU’s trade leverage on two fronts. First, the structural power inherent in the size of the EU market will make trade counterparts where service providers are located more sensitive to potential countermeasures. This will impact the ability of third-country service operators to access the Single Market.
Moving beyond the WTO
Secondly, the EU initiative represents a further step in Brussel’s consolidated priority to effectively execute trade policy despite the often lengthy processes which are characteristic of multilateral fora. Specifically, the strengthening of trade retaliatory measures can be seen as Europe’s response to the major delays and stalemate in the WTO Appellate Body. The growing importance of services and intellectual-property rights to EU bilateral trade agreements has made it an even greater priority for the EU to carve out parallel institutional tools to tackle unfair practices.
Future Developments in EU Trade Protection
Being a long-time proponent of multilateral trade mechanisms, the EU is not expected to rely on this new mechanism arbitrarily, but rather to tie its new prerogatives to the growing number of bilateral trade agreements it has been concluding globally over the past decade. The strengthening of EU trade-protection tools will also be subject to future debates on issues such as an EU digital levy, which, by increasing EU obligations for service providers, have the potential to exacerbate imbalances and the effects of an uneven playing field when it comes to trade agreements with third countries.
How Tech Companies Could Respond
Companies providing services in the EU should monitor developments in the EU’s execution of its newly expanded trade protection prerogatives. Particular attention should be devoted to new potential issue areas falling in scope, such as considerations around digital taxation. This especially applies to service providers who are based outside of the EU but still operate in the EU market.
Tech service companies may consider engaging with both the Commission and trade-partner national authorities to address and pre-empt disputes arising from the enforcement of existing EU free trade agreements. Viable institutions for carrying on similar discussions include regulatory cooperation fora as part of EU FTAs, in which stakeholders can discuss various horizontal regulation and its implications for existing bilateral trade commitments before relevant items are potentially taken to dispute-settlement.
Tech firms should in general keep themselves informed about regulatory developments within the EU – for instance, on issues of data privacy, taxation, cybersecurity – to be able to assess whether these could spill over into existing FTAs.
To find out more about the implications of the new rules on your organisation, contact firstname.lastname@example.org
Authors: Gokhan Tok and Leopoldo Biffi