148. The EU's new trade policy, with Sabine Weyand of DG Trade

Episode Summary

Executive Summary: Sabina Weyand argues the EU’s China policy is shifting from openness to a firmer, rule-based approach: the CAI improves market access, disciplines distortions, and preserves EU regulatory space. She says EU-U.S. cooperation can advance on China, subsidies, forced labor, digital taxation, aircraft subsidies, and climate, with “open strategic autonomy” meaning multilateral where possible and autonomous where necessary.

Main Topics: EU-China Comprehensive Agreement on Investment (CAI) (Priority: 5/5): Weyand defends the CAI as the end result of a seven-year negotiation aimed at rebalancing market access, addressing level-playing-field concerns, and adding sustainable development commitments such as Paris Agreement implementation and forced-labor-related ILO efforts. EU-U.S. cooperation on China and trade rules (Priority: 5/5): She rejects the idea that the CAI blocks transatlantic coordination, arguing it complements a broader China strategy that still includes closer cooperation with the United States on screening, export controls, standards, and multilateral pressure on China. Subsidies and WTO rule reform (Priority: 4/5): The discussion focuses on reviving trilateral/U.S.-EU-Japan work to update WTO disciplines on industrial subsidies, public bodies, and forced technology transfer, especially in light of COVID-era state support and disagreement over enforcement strategy. Forced labor and EU trade/toolbox (Priority: 4/5): Weyand outlines the EU’s emerging response to forced labor through a global human rights sanctions tool, corporate due diligence legislation, and possible import restrictions, while stressing the need for a multi-pronged rather than purely border-based approach. Airbus-Boeing dispute resolution (Priority: 3/5): She says the long-running aircraft subsidies fight could be settled if both sides suspend sanctions and negotiate future disciplines, but notes structural differences in how Boeing and Airbus are supported make the talks difficult. Digital services taxes and multilateral tax reform (Priority: 3/5): Weyand welcomes the U.S. pause on retaliatory tariffs and argues the issue should be settled through the OECD, insisting unilateral sanctions would be WTO-incompatible. Open strategic autonomy and climate policy (Priority: 5/5): She defines open strategic autonomy as acting multilaterally where possible and autonomously where necessary, then links it to EU climate ambition, carbon leakage concerns, and a carbon border adjustment mechanism designed to be WTO-compatible.

Key Arguments: The CAI is not a sudden concession; it concludes a seven-year negotiation that fulfilled an existing mandate to rebalance market access, address distortions, and advance sustainability. The agreement does not reduce EU policy space because the EU is binding itself largely to commitments it already made in the WTO, while preserving regulatory power and investment screening for security purposes. China gains confirmation that the EU market remains open, but the real new value is improved access for EU investors in selected sectors and commitments on non-discrimination and forced technology transfer. EU policy toward China has already changed materially through FDI screening and a foreign subsidies initiative, showing the EU is developing an autonomous enforcement toolkit rather than relying on the U.S. A U.S.-EU trade and technology council could coordinate export controls, standards, AI, connected cars, and other future-oriented regulation. On subsidies, the EU wants to restart substantive negotiations in the WTO rather than rely only on unilateral pressure, and believes a unified bloc can better constrain Chinese overcapacity. Forced labor requires multiple instruments: sanctions, import controls, corporate due diligence, and strengthened international labor standards. The Airbus-Boeing dispute should be paused via sanctions suspension so both sides can negotiate durable future disciplines instead of perpetuating retaliation. Digital services tax conflicts should be resolved in the OECD, not by unilateral U.S. tariffs, which the EU views as WTO-incompatible. Climate policy must combine ambitious domestic decarbonization, cooperation with partners, and selective border measures to prevent carbon leakage; trade policy alone cannot impose global change. Trade agreements can support climate goals by expanding green goods/services and facilitating technology transfer, but sanctions-based environmental enforcement has limited legitimacy and reach. The concept of open strategic autonomy means the EU seeks cooperation and openness as default, but also the ability to act independently when necessary to protect its values and interests.

Data Points: CAI negotiation length: 7 years - Weyand says EU-China investment talks began seven years earlier and only recently concluded. EU policy paper on China: 2019 - She references the EU strategy that described China as a cooperation partner, economic competitor, and systemic rival. EU FDI screening implementation: 5 months - She says the new EU screening mechanism has been applied for five months and is already affecting scrutiny of third-country investment. Foreign subsidies proposal timing: Middle of this year - She says a legislative proposal following the EU white paper on foreign subsidies will be presented mid-year. CAI text publication timing: Next week - At the time of the interview, she says the agreement text will be published the following week. EU emissions reduction target: 55% - She cites the EU’s updated ambition to reduce emissions compared with 1990 levels. Climate neutrality target: 2050 - She states the EU’s commitment to climate neutrality by 2050. EU recovery program: 1.8 trillion - She says the EU has oriented its large recovery package around the digital and green transitions. EU share of global emissions: 8% - Used to argue the EU cannot solve climate change alone and must work with others. Airbus-Boeing dispute length: 17 years - She describes the aircraft subsidies conflict as a 17-year-old dispute. Advance warning on U.S. sanctions decision: A couple of hours - She says the EU learned with only hours of notice that the U.S. had escalated sanctions. Potential timeline to resolve Airbus-Boeing: Within six months - She says the EU hopes to suspend sanctions and agree on future disciplines quickly. Brexit follow-up: Partnership and cooperation agreement - At the end, she says the EU-U.K. relationship should move forward on that basis.

Pivotal Quotes: "China at the same time as a cooperation partner, an economic competitor and a systemic rival." — Sabina Weyand: Describing the EU’s 2019 China policy paper and the framework guiding EU-China relations. "We don't need policy space to discriminate, we need policy space to regulate, and that is unaffected by CHI." — Sabina Weyand: Defending the CAI against criticism that it constrains EU regulatory freedom. "Open strategic autonomy... means we act together with others, multilaterally or bilaterally, wherever we can, and we act autonomously wherever we must." — Sabina Weyand: Explaining the EU’s post-pandemic strategic doctrine in trade and economic policy.

Implications: The episode signals a more assertive EU trade posture: cooperation with the U.S. on China, rules, and climate, but with its own enforcement tools. Businesses should expect tighter scrutiny, new compliance duties, and more climate- and rights-linked trade measures.