EU Gets Ready for Fresh Sanctions and Less Gas
Also — War in Ukraine, Green Deal, Environment, Customs, Trade, Rule of Law
Hi! Welcome to What’s up EU, your go-to newsletter to stay on top of the news. Our publication is also available in French, Spanish, Italian, Romanian, Russian, and Ukrainian. Feel free to share this newsletter with friends and colleagues.
War in Ukraine — A Week, Unpacked
NEW SANCTIONS AHEAD • Several EU Member States, notably Poland and Baltic countries, are pushing for new sanctions to be agreed upon, as it emerged that the Russian military murdered and raped unarmed civilians, notably in Irpin and Bucha, near Kyiv. European Council President Charles Michel indicated that further EU sanctions are on their way - and France is expected to confirm its support for an embargo on Russian oil and coal.
BALTICS AND GAS • While Germany is still being cautious not to target the Russian energy sector, some Member States are going solo. Lithuania has announced that it stopped importing Russian gas, effective 1 April — thereby becoming the EU’s first country to decide on a full-blown embargo. The Lithuanian government is pushing other EU Member States to adopt a tougher stance on energy supplies, amidst calls by Ukrainian President Zelensky to boycott Russian gas. Estonia and Latvia have also severed their energy ties with Russia.
POLAND AND GAS • Warsaw is also moving forward with a plan to end imports of Russian oil by year-end, in a move it describes as “the most radical plan in Europe”. In effect, Poland could impose an embargo as early as April. Prime Minister Morawiecki lambasted governments that “are not doing anything about the war”, according to Daniel Tilles, editor in chief of Notes from Poland, a blog. Deputy Prime Minister and leader of PiS Kaczynski struck a similar note in an interview with Welt, calling out Germany for its de facto support of Russia’s economic warfare.
RAIDS & GAS IN RUBLES • On 29 March, the Commission launched unannounced inspections of several German companies involved in natural gas storage and transition. The institution announced that the companies are suspected of abusing a dominant position, under Article 102 TFEU. One of the companies is the biggest natural gas company in the world — Gazprom. The Commission began collecting evidence already in October to investigate whether the company had manipulated the market during the energy price crisis. Gazprom’s office in Berlin denied any inspection from the authorities, while spokespeople for both the Commission and the company refused to comment on the situation.
At the same time, Germany has initiated a contingency plan to be ready for a potential cut-off of Russian gas, as the Kremlin demanded that the purchase be paid in rubles. As Germany is heavily reliant on gas imports — buying more than 50% of its gas from Russia — it has started the first of three phases of the plan. The rationale is that a potential cut-off would paralyse the German industry, from steel to chemicals, within weeks. “There are two more steps, the alarm and the emergency phase, but we are not there yet. The situation would have to worsen dramatically before we reach those stages. We would then practically need a change in the supply lines and would have to react accordingly,” explained Economy Minister Robert Habeck.
BRUSSELS MEETS BEIJING • For the first time since June 2020, Commission President Ursula von der Leyen, European Council President Charles Michel and High Representative Josep Borrell met with Chinese President Xi Jinping and Premier Li Keqiang as part of the 23rd Sino-European summit on 1 April 2022. While the summit had been planned for a long time already, the agenda was updated to address the war in Ukraine. The EU’s leaders called on Beijing to pick a side between Russia and Ukraine.
The EU’s line throughout the summit was to dissuade China from helping Russia circumvent EU sanctions, while Beijing maintains a ‘rock-solid’ friendship with Moscow. On the other hand, China, which still refuses to condemn the invasion of Ukraine, accused the US of being the ‘instigator’ of the conflict and promoting a cold war mindset, according to Beijing’s five point position strategy. China exhorted the EU to act independently of US foreign policy.
The ‘frank and open’ discussions between both parties didn’t end up with any tangible progress. At a press conference after the meeting, Ursurla von der Leyen noted that both parties had “opposing views”. The EU didn't exclude using its economic leverage to hold Beijing accountable for its tacit support for Moscow — which could include secondary sanctions. Prior to the war in Ukraine, relations between Beijing and Brussels grew increasingly bitter over China’s human rights record in Xinjiang, the aborted Comprehensive Agreement on Investment (CAI), and Lithuania’s recognition of Taiwan.
STAND UP FOR UKRAINE • The fundraising campaign aimed at catering for the needs of Ukrainian internally displaced people and refugees was launched by European Commission President Ursula von der Leyen and Prime Minister of Canada Justin Trudeau. It is carried out in partnership with international advocacy organisation Global Citizen and will culminate on 9 April during the pledging event hosted by the EU and Canada.
As a reminder, since the beginning of Russia's war against Ukraine, around 13 million Ukrainians left their homes with 2.5 million hosted by Poland. In recognition of Poland`s efforts in supporting those refugees, the country will be represented by its President Andrzej Duda in the 9 April event. As part of the “Stand Up for Ukraine”campaign, the EU has put in place a new system of in-kind donations from the private sector to Ukraine, as well as Moldova and neighbouring EU Member States who are accepting refugees. In-kind donations of medicines, vaccines, medical equipment, tents, beds and emergency blankets will be coordinated by the EU on a match-making basis.
GOLDEN PASSPORTS • The European Commission issued a recommendation on 28 March that all member states terminate investor citizenship ‘Golden Passport’ schemes. Investor schemes allow individuals to acquire EU citizenship through less stringent conditions than under ordinary naturalisation regimes, conditional on considerable investments in the EU country concerned. The Recommendation warns against such schemes, which pose serious tax evasion and money laundering risks, and highlights that “some Russian or Belarusian nationals who are subject to sanctions or are significantly supporting the war in Ukraine might have acquired” golden passports. Countries such as Bulgaria, Cyprus and Malta have already taken steps to stall applications - and European Parliament President Roberta Metsola, a Maltese national, tweeted her support for the termination of Golden Passport schemes.
Green Deal — Commission Unveils Circular Economy and Greenwashing Ban Measures
On 30 March, the European Commission presented a wide set of measures as part of its European Green Deal strategy to hit EU carbon neutrality by 2050. Of note, it seeks to make almost all physical goods more sustainable, including textiles and construction products, boost circular business models and empower consumers in the green transition. The proposal is now intended to be discussed by the Council of the EU and the European Parliament.
ECODESIGN • The proposals, which fall into the Commission’s March 2020 Circular Economy Action Plan, seek to “move to a truly circular economy in the EU: decoupled from energy and resource dependencies, more resilient to external shocks and respectful of nature and people’s health”. To that end, the Commission drafted a proposal for a Regulation on Ecodesign for Sustainable Products, setting new requirements to make a large panel of products – from clothes to laptops to mobile phones – more durable and energy and resource efficient.
Brussels also announced it would revise the Construction Products Regulation, in an effort to build a harmonised framework to assess the environmental performance of construction products. The overall plan could lead to energy savings equivalent to a year’s worth of the EU bloc’s Russian natural gas imports by 2030, writes Bloomberg, quoting Virginijus Sinkevicius, Commissioner for the Environment. Ecodesign requirements had already saved consumers €120bn in 2021 and led to a 10% lower annual energy consumption by the products in scope.
CONSUMERS FIRST • Further announcements have been made aiming to protect consumers against false environmental claims and tackle planned obsolescence. Amendments to the Unfair Commercial Practices Directive will extend the list of prohibited unfair practices, such as not informing obsolescence, making generic and vague environmental claims or displaying a voluntary sustainability label that has not been certified. Information on the durability and reparability of products will also be enhanced, including giving a ‘repairability score’ and easy access to software update information - echoing demands earlier this month from the European Parliament to implement an effective right to repair.
The EU’s Digital Twin of the Earth to Tackle Climate Change
As part of the Digital Europe Programme, the European Commission has launched on 30 March the Destination Earth Initiative (DestinE). It aims to “develop a highly accurate digital model of the Earth”, and will help “monitor, model and predict natural and human activity”.
Destination Earth – new digital twin of the Earth will help tackle climate change and protect nature
DIGITAL TWIN • The 150 million euro investment is designed to create a digital clone of the planet. The European Commission also wishes to increase data sharing of environmental data-sets as part of a ‘data lake’, which will consolidate pre-existing information.
“The idea is for planners to understand the potential impact of development scenarios decades into the future. One example could be a dike to protect against sea-level rise in the Netherlands. The proposed digital twin could evaluate whether infrastructure built to withstand the climate conditions of today will still be resilient in the 2050 timeframe”, according to Heather Clancy for Climate Tech Weekly.
Margrethe Vestager, who is in charge of making the EU ‘Fit for the Digital Age’, stressed that “this initiative is a clear example that we cannot fight climate change without digital technologies. For example, the digital modelling of the Earth will help to predict major environmental degradation with unprecedented reliability”.
GOING FORWARD • The project brings together the European Space Agency (ESA), the European Centre for Medium-Range Weather Forecasts (ECMWF), and the European Organisation for the Exploitation of Meteorological Satellites (EUMETSAT). By the end of 2024, the Destination Earth Initiative aims to have operational digital twins of the earth to increase the quality of predictions on weather-induced and geophysical hazards as well as climate change.
Report Says Urgent Changes To Customs Union Needed
On 31 March, the Commission-appointed Wise Persons Group on Challenges Facing the Customs Union (WPG) published a report on the future of the EU Customs Union. The report, which will help fuel further inter-institutional conversations, seeks to make the customs union more resilient to future shocks all the while ensuring the integrity of the Single Market.
PROBLEMS • The WPG, which brings together a wide panel of experts from trade, politics and academia, found that the customs union was in urgent need of structural changes. It lists unprecedented developments in trade and technology, lack of unity in applying customs-related checks, and a changed view of what customs represent (from mere revenue collection to the protection of the ‘European way of life’) as root causes.
As evidenced in the report:
“Security and safety concerns have risen to the fore […]. Evidence […] shows that dangerous, non-compliant products still enter the EU market every day and that we leave billions of Customs duties and taxes uncollected. The reality is also that European Customs do not yet currently function “as one”. This leaves the Customs Union at the mercy of its weakest link.”
RECOMMENDATIONS • The WPG outlines a set of 10 measures to be implemented by 2030. Among others, it calls for a new framework for cooperation for better data sharing across Member States — rooted in a new approach to data to diminish reliance on customs declarations and provide business with a single entry point for formalities. It further recommends creating a dedicated European Customs Agency as well as scrap the 150€ customs duty exemption threshold for e-commerce. Last but not least, it insists the Customs should play a role in promoting the European way of life, by making sure that customs transactions have strong sustainability, safety, human rights, health and safety safeguards.
NEXT STEPS • The report kickstarts further conversations with the European Parliament and Member States ahead of a Commission’s proposal for a comprehensive reform of the working and governance of the Customs Union before the close of 2022.
EU Files Complaint Against UK Before the WTO, a First Since Brexit
The EU has filed a complaint to the WTO, alleging that UK subsidies to offshore wind farms violate WTO rules by favouring domestic products to the detriment of imports. This is the first WTO dispute between the EU and UK since Brexit.
SUBSIDIES • The case brought by the EU before the WTO concerns UK subsidies awarded to offshore wind farms. Under the updated Contracts for Difference (CfD) scheme, the UK is now able to grant subsidies to offshore wind projects that use turbines produced domestically. Through these subsidies, the government aims to close the gap between the price of producing renewable electricity (‘strike price’) and the average electricity price of the market (‘reference price’). Boris Johnson also wants to raise the share of investments in offshore wind projects that goes into the UK economy from 29% to 40-50%. Eligibility for these subsidies is based on a bidding process through which firms outline what share of their contract’s value will be produced in the UK.
NEGATIVE EFFECTS • The European Commission argues that the measure disregards the WTO’s national treatment principle, whereby imported and locally-produced products should be treated equally. “Discriminatory practices, such as the UK ones challenged today, encourage the move of investments away from the EU, impacting the EU’s competitiveness in the sector and in general undermine efforts to address the climate crisis”, the Commission explained. Other negative effects put forward by the Commission include potential rises in prices for consumers and job losses in the EU green energy sector.
REACTION • According to the Financial Times, the UK government considers itself in line with WTO law and will “rigorously contest the EU’s challenge”, arguing that other EU countries have similar requirements for granting subsidies in the green energy sector. One British official also mentioned that some ministers were “puzzled” by the Commission's move given the current need for cooperation on the various energy concerns raised by the war in Ukraine.
“The EU had the option of raising its concerns under the comparatively more effective dispute resolution mechanisms for which the UK-EU Trade and Cooperation Agreement (TCA) provides… The fact that it did not probably speaks to a political desire to underplay the dispute”, notes Dr. Totis Kotsonis, a partner at Pinsent Mason.
NEXT STEPS • For now, the EU has only requested WTO dispute consultations, which will give both parties the opportunity to find an agreement without further litigation. The EU will be able to ask the WTO for the formation of a panel of arbitrators if no satisfactory solution is found by the two parties within 60 days of consultations.
Upholding the rule of law in Poland, bad timing for the CJEU
On 29 March, the Court of Justice of the EU (CJEU) delivered its judgement in the Getin Noble Bank case. The uniqueness of this procedure lies in the fact that it was the very first reference for a preliminary ruling submitted by a judge appointed under the — very controversial — laws reforming the system of appointment of judges of the Polish Supreme Court.
MUCH AWAITED • However, for a reference to be admissible, it must fulfil several conditions. Among others, it must come from an independent court. The outcome of this judgement was therefore particularly awaited for since it could enable the CJEU to disavow or, on the contrary, approve the status of the new judges appointed to the Polish Supreme Court.
ECHR • The Court of Justice held that, as it was not aware of any decision by a national or international court invalidating the independence of the referring judge, the preliminary reference should be declared admissible. This is in spite of the European Court of Human Rights (ECHR) questioning the status of these same Polish Supreme Court Judges this past February. However, the ECHR ruling, which could ultimately have changed the outcome of the Getin Noble Bank case, was not taken into account by the CJEU as it had been published after the oral phase of the CJEU proceedings. It is therefore due to a mere “timing issue” that the CJEU did not take the ECHR ruling into its proceedings, and as a result might have missed the opportunity to condemn violations of the rule of law in Poland.
GOING FORWARD • This CJEU judgement comes at a time when pressure to uphold the rule of law in Poland seems to be waning. The European Commission does not seem to intend on applying the conditionality mechanism, which allows the suspension of EU funds in case of violations of the rule of law. According to unofficial sources, it is instead in the process of approving the Polish recovery plan. This seemingly loosening approach by the Commission over the protection of the rule of law can be explained by Poland's management of the Ukrainian crisis - as it may be perceived by some as politically insensitive to sanction a Member State that has shown such solidarity by welcoming nearly 2.5 million Ukrainian refugees on its territory.
What we’ve been reading this week
Europe’s apparent rediscovery of geopolitics should not blind us to the ways the Union already engages in unilateralism to enforce her rules in world trade, writes Alan Hervé for the Robert Schuman Foundation. He makes clear that there is no way back: Europeans must learn to wield power.
Mathieu Duchâtel, Angela Stanzel, and Justyna Szczudlik of the Institut Montaigne outline what the EU could have expected from the joint summit with China, which remains relevant despite - or because - of its inconclusiveness. They insist that Brussels should be ready to use leverage it has over China, including the threat of limiting the latter’s access to European markets.
What will be the consequences of Russia’s demand of being paid in roubles for gas exports? They are only for show, says Zach Meyers, who argues for the Centre for European Reform that there is no credible alternatives to the dollar and the euro as international currencies. On the other hand, Alexander Mihailov, writing in VoxEU, does not see a preordained failure in Putin’s announcement. While allowing that it may only be ‘political theatre’, he reviews possible rationales behind the move, including a bid to internationalise the rouble.
The New Yorker’s Benjamin Wallace-Wells tells the backstory of the American administration’s search for sanctions that could, and have, hit Russia far harder than Moscow expected and prepared for.
Agora Energiewende publishes a report on European energy policy, in which the writers, directed by Matthias Buck, argue for accelerating current efforts at reducing fossil fuel consumption, and for investing massively in renewable energy sources.
For the Centre for European Policy Studies, Karel Lannoo and Apostolos Thomadakis make the case for giving private markets a more significant role in the green and digital transitions.
Thanks to those who helped put this edition together — Cyril Tregub, Alexandra Philoleau, Augustin Bourleaud, Théo Larue, Briac de Charry, Maxence de La Rochère, Ludmila Tautiyeva, Théo Bourgery, Thomas Harbor. See you next Tuesday !
*Articles do not have individual authors, the views expressed in this publication do not reflect the personal views of those credited.