Why EU plan to protect key industries scares free traders

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Good morning. Let’s start with a warning for the European economy like German exports to China have recorded a double-digit decline since the beginning of the yearwith a stronger euro and high energy prices dashing hopes that the EU’s largest economy would benefit by a rebound in Chinese demand.

Today, our Brussels head office assesses the fight over the future of EU trade rules and we have news of Hungary’s latest showdown with Kiev.

Exchange

These are anxious times for EU liberals. With the enthusiastic support of France and its allies, Brussels is trying to build the union’s geopolitical power in the pursuit of “strategic autonomy”, strengthening trade defences and intervening ever more deeply in key industrial sectors, writes Sam Fleming.

Background: Next month, the European Commission will propose an Economic Security Strategy to further protect the EU’s interests, in response to US pressure for a tougher approach to China in particular.

This is unfortunate for EU governments who like to proclaim their enthusiasm for an open, rules-based global trading system. They are not alone: ​​in a new policy paper, lobby group BusinessEurope argues for the EU to stay in touch with its liberal roots.

There can be no strategic autonomy without openness, according to the newspaper. Trade agreements with New Zealand, Chile, Mexico and Mercosur should therefore be put into effect during the life of the current commission, he says, calling for expedited talks with AustraliaIndia and Indonesia.

It strikes a remarkably skeptical note when assessing two key policy innovations that could be featured in the Commission’s strategy paper: the possible creation of new powers to impose EU-wide export controls on key technologies, together with tighter control of flows outgoing investment.

BusinessEurope says it does not, in principle, support restrictions on outbound investments, arguing they should only be used in “exceptional cases” to address serious security concerns.

Export controls, meanwhile, should only be imposed on a case-by-case basis in consultation with the private sector and in coordination with key international allies.

Businesses aren’t the only questioning voices. With EU trade ministers due to meet tomorrow, more “liberal” member states are concerned the EU is creating too many trade barriers, an EU diplomat said.

There is, therefore, little chance of capitals reaching a quick consensus on the controversial issue of investment controls. When it comes to the Commission’s broader economic security proposals, “the strongest proponents of a more liberal market economy are a little worried about what this will mean in terms of barriers to trade,” the diplomat added.

Chart du jour: New world order

The G7 must accept that it cannot rule the worldwrites Martin Wolfeven though it is still the most powerful and cohesive economic bloc in the world and produces all major reserve currencies.

Then Hungary

It has been nearly a month since the European Commission trumpeted a deal end a blockade of Ukrainian food products by several EU members instead offering curbs blessed by Brussels and a few bushels of cash.

But Hungary is delaying its implementation, according to the commission, withholding €100 million in EU cash to support farmers in Poland, Slovakia, Bulgaria, Romania and Hungary. write Andy Limits AND Marton Dunai.

Background: Last year, Brussels lifted tariffs and quotas on Ukrainian products and instituted fast-track import procedures. But a lot got stuck in neighboring countries due to lack of onward transport, harming local farmers and resulting in national import bans.

Budapest now says it must maintain its ban on goods imported with contracts signed before May 2 as the Commission’s proposal does not cover them. “We are currently waiting for the Commission to resolve the issue satisfactorily and ensure the protection of Hungarian farmers,” said the country’s agriculture ministry.

The other countries have lifted their bans and will pressure Hungary to bow during a meeting of EU agriculture ministers on May 30, aided by a special guest: Ukraine’s Agriculture Minister Mykola Solskyi.

The standoff reflects rising tensions between Budapest and Kiev.

At yesterday’s meeting of EU defense ministers, Hungary continued to block allocating another 500 million euros to Ukraine for arms on the grounds that Kiev said Hungary’s OTP Bank supports Russia.

“If a country like Ukraine . . . needs our money, please respect us and do not sanction our companies,” Hungarian leader Viktor Orbán told the Qatar Economic Forum yesterday.

A special EU fund has spent €3.6 billion to repay some €10 billion of arms supplied to Ukraine, but it needs a new top-up to keep paying.

Separately, Orbán made his divergence from the rest of his EU and NATO allies painfully clear by stating at the same event in Qatar that Ukraine has “no chance of winning this war”.

What to watch today

1. German President Frank-Walter Steinmeier meets Romanian President Klaus Iohannis in Bucharest

2. NATO Secretary General Jens Stoltenberg speaks at the Brussels Forum from 2.45pm.

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