Marathon negotiations on AI
But also — China, European Investment Bank, Mercosur
Hello! It’s Tuesday, 12 December, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
We are very happy to announce that Hana Rajabally is joining us as UK Editor. Hana will be our newsletter’s ears in London to bring you the most relevant EU news from Schuman Square to Whitehall.
The Briefing
The European Parliament and the Council of the EU reached a provisional agreement on December 8th on the draft regulation of artificial intelligence (AI Act). This agreement was achieved following a three-day marathon trilogue in Brussels.
IN CONCRETE TERMS • In all likelihood, the AI Act will be approved as agreed upon at the negotiations at the end of last week. Europe is the first continent to establish comprehensive legislation on artificial intelligence. The regulation provides for:
Classification by degrees of risk of AI applications with corresponding obligations;
Transparency rules for generative artificial intelligence models such as ChatGPT, due to their significant risks to society;
Prohibition of certain particularly harmful AI applications: social scoring, hidden manipulation techniques, categorization based on sensitive data like sexual orientation or religious beliefs, real-time facial recognition (only possible under certain strict conditions);
Establishment of bodies responsible for monitoring AI development coordinated by an "AI Office" at the European level;
Fines of €35 million or 7% of global turnover for non-compliance with the rules.
MARATHON • These 35 hours of intense negotiations will mark a significant episode in Brussel’s history. They were extensively documented on Twitter, where negotiators' exhausted selfies and pictures of piles of food packages abounded.
One of the 21 debated issues concerned the complete ban on real-time facial recognition. At the insistence of Member States, notably France, the final compromise includes limited exceptions for defence and national security.
Amnesty International lamented seeing the Parliament "succumb to pressure from member states and backtrack on its initial position, which offered strong protections, including an unconditional ban on real-time facial recognition."
TRILOGUES • Trilogues are informal negotiations initiated to reach a provisional political agreement that satisfies both the Council and the Parliament, in the presence of European Commission teams.
Negotiators work with a "four-column" document. This document presents (i) the initial proposal (April 2021) from the Commission; (ii) the text amended by the Council (November 2022); (iii) the text amended by the Parliament (June 2023); (iv) and an empty column for the potential compromise. In practice, the text is usually adopted in the same form agreed upon by the co-legislators when a provisional agreement is reached in a trilogue.
After the trilogue, only negotiators appointed by the European Parliament and the Council of the EU have access to the compromise text, which is not made public.
REWIND • The Commission's initial proposal dates back to April 2021. Once the Commission's proposal was adopted, the Council of the EU adopted its position on November 25, 2022.
The launch of ChatGPT on November 30, 2022, occurred just a few days after the Council adopted its position. The rapid development of ChatGPT and generative AI quickly threatened the viability of the AI Act. The emergence of this evolving technology also disrupted the political balances surrounding the text.
REGULATORY BURDEN• In November 2023, France, Germany, and Italy opposed strict regulation — the position defended by the Parliament — of foundational models that form the basis of generative intelligences like ChatGPT.
Paris, Berlin, and Rome fear that Europe might shoot itself in the foot by stifling the emergence of true European champions, similar to Mistral in France or Aleph Alpha in Germany. The joint statement proposed overall self-regulation for companies working on these models.
These disagreements between the Parliament and the Council caused the last round of trilogues before last week’s to collapse. It almost derailed the legislative schedule: without an agreement before Christmas, there was a significant risk that the regulation would not be adopted before the upcoming European elections scheduled for June 2024.
BRUSSELS EFFECT • These landmark negotiations signal the EU’s leading position in the regulation of AI technology, in contrast to the UK’s more cautious approach, similar to the US. The March 2023 AI white paper, updated in August, emphasised that the UK government had no intention to introduce new legislation to cover AI, to the concern of many British MPs.
NEXT STEPS • Most provisions of the regulation will apply two years after its entry into force, i.e., in 2026.
In Case You Missed It
CHINA • On 7 and 8 December, the first in-person EU-China summit since 2019 was held in Beijing. Ursula von der Leyen and Charles Michel met with Xi Jinping and his Prime Minister Li Qiang. Overall, the meeting revealed the growing chasm between Beijing and Brussels on nearly all the topics discussed.
On trade, the European delegation came to the summit with a specific objective: to confront Beijing about the growing trade deficit between the EU and China. Over the last two years, the EU's trade deficit with China has doubled, reaching a record high of €390 billion in 2022.
The lack of access of European companies to the Chinese market and the preferential treatment of Chinese national companies were cited by the President of the European Commission as reasons behind this. "European leaders will not tolerate a long-term trade imbalance," she warned.
However, Beijing emphasises that exports are necessary to support the EU's energy transition. Director-General of the Chinese Ministry of Foreign Affairs responsible for European affairs, Wang Lutong, cautioned: "If you want us to support the EU in the green transition, do not be protectionist.”
The prospect of reconciliation between the EU and China on trade issues remains distant. Last Wednesday, Italy announced its withdrawal from the Belt & Road Initiative, China's flagship investment program. In Germany, the Interior Minister proposed in September to impose restrictions on telecom operators using fewer Chinese equipment for 5G. Following the launch of its anti-subsidy investigation into Chinese electric vehicles, the EU could establish tariffs on Chinese vehicles in the coming months.
However, it is unlikely that Beijing will retaliate strongly, according to Noah Barkin of the German Marshall Fund. "[China] will want to preserve as much access to the European market as possible and avoid measures that would further tarnish its image among European investors. Instead, one should expect Beijing to play for time (...) while hoping that the weakening of the European economy and the results of elections in the EU and the United States dampen Europe's appetite for confrontation," Barkin suggests.
Disagreements between Beijing and Brussels on Russia and the war in Ukraine also persist. The EU is currently considering the possibility of including 13 Chinese companies in its next package of sanctions against Russia. China is actually suspected of continuing to provide "dual-use items"—which are not weapons but can be used for military purposes—to Russia. Xi Jinping has been informed of the European accusations against these companies. It remains to be seen if he will act before the adoption of sanctions.
EUROPEAN INVESTMENT BANK • Meeting in the "Economic and Financial Affairs" (ECOFIN) council, the EU’s 27 economy ministers agreed to support Nadia Calviño's candidacy for the presidency of the European Investment Bank (EIB).
She secured victory over Margrethe Vestager, European Commissioner for Competition, who will return to the Commission to resume her duties. Nadia Calviño is expected to take the helm of the institution in Luxembourg on January 1st, replacing the German Werner Hoyer.
Since the official announcement of her candidacy in August, the Spanish Minister of Economy had emerged as the favourite.
Right from November, Germany announced its support for the Spanish candidacy. While France remained more discreet about its preference, it is highly likely that it also leaned toward Nadia Calviño. Relations between France and Margrethe Vestager have not been the warmest since the rejection of the Alstom-Siemens merger and the appointment of an American as Chief Economist of the DG Competition at the European Commission (a decision that has since been annulled).
The EIB has played a particularly important role in supporting the European economy during Covid, reinforcing aid to Ukraine, and financing the energy transition. These events have shed light on the importance of the institution, whose presidency, which has long been the envy of very few, has generated significant interest in recent months.
MERCOSUR • Negotiations on the free trade agreement between the EU and Mercosur are facing new obstacles. European negotiators had hoped that a compromise would emerge from the annual meeting of Mercosur heads of state on December 7.
However, the imminent arrival of a new government in Argentina led Brazil—which currently holds the revolving presidency of Mercosur—to state that the opinion of the new Argentine government would be necessary.
Javier Milei, the new President of Argentina, took office yesterday. Despite his criticisms of Mercosur during the electoral campaign, Milei's economic liberalism suggests that he will support the agreement. "We have no objections; it is desirable for the agreement to be adopted," said Diana Mondino, the future Argentine Minister of Foreign Affairs.
On the EU side, France reiterated its criticisms of the free trade agreement. At COP28, Emmanuel Macron stated that the agreement "does not take into account biodiversity and climate." The French president is concerned about the consequences on the French domestic agricultural market of agricultural imports with fewer environmental production conditions.
On December 7th, Brazilian President Lula said, "I have spoken to almost all the presidents of the European Union. (...) I urged Emmanuel Macron to stop being so protectionist (...) but it did not work."
It is difficult to say whether an agreement will be reached by the end of the year and if it will be adopted before the European elections in June 2024.
Despite these difficulties, EU Trade Commissioner Valdis Dombrovskis assured that he would continue to work for the negotiations to be finalised. During a visit to Berlin, Lula stated, alongside Olaf Scholz, that he was determined to find a compromise.
What We’re Reading
Gita Gopinath, Chief Economist of the IMF, shares her recommendations regarding the deepening of the single market in an interview with Martin Sandbu for the Financial Times.
The Montaigne Institute publishes an analysis by Raphaël Tavanti-Geuzimian on the future of European space.
In the Granta magazine, Peter Richter narrates a piece of contemporary history in Berlin through the lens of Friedrichstraße, one of the main thoroughfares traversing the city centre.
In the London Review of Books, Neal Ascherson reviews "Beyond the Wall: East Germany 1949-90" by Katja Hoyer and "Out of the Darkness: The Germans, 1942-2022" by Frank Trentmann.
This week’s newsletter is brought to you by Hana Rajabally, Maxence de La Rochère, and Augustin Bourleaud. See you next week!