Although geopolitical risks and their effects on global production and trade are much debated, little empirical evidence has emerged of increased fragmentation in global value chains. Disruption caused by the coronavirus (COVID-19) pandemic, the Russian war against Ukraine and increased geopolitical tensions across the board raise questions about whether we are witnessing a trend towards deglobalisation. Most analysis to date does not find evidence of significant changes in aggregate European trade patterns. Nonetheless, the ways that firms are adjusting their trading relations and supply chain management may take time to unfold, given the challenges and costs involved in modifying business models, supply chains and contracts.[1] Survey evidence is therefore helpful to identify new trends. To this end, the European Bank for Reconstruction and Development (EBRD), the Banca d’Italia, the Deutsche Bundesbank and others have recently conducted surveys asking firms about supply chain risks.[2]
This box summarises the findings from a recent ECB survey of leading firms operating in the euro area, focusing on their production-location and input-sourcing decisions, particularly in response to supply chain risks.[3] The firms surveyed are mostly multinationals with significant operations in the EU, while most also have a large share of their activity outside the EU. Table A at the end of this box summarises the sample in terms of extra-EU activity. The questionnaire had three parts, covering questions related to (i) trends in the location of production/operations and their main drivers; (ii) trends in input sourcing, dependency and supply chain risks; and (iii) the implications of these trends for activity, employment and prices.
These large firms expect to become more active in (re)locating operations over the next five years to make their businesses more resilient (Chart A). Companies were asked how the location of their production/operations had changed over the last five years and how they expected it to evolve over the next five years. The replies indicate higher shares of firms expecting to (re)locate more production both into and out of the EU in the next five years than in the previous five years.[4] But there is still a higher proportion of companies expecting to move production out of the EU than into the EU. A higher share of firms also said that they expected a tendency to (i) relocate more production geographically closer to the final production site or country of sales (“near-shoring”), (ii) diversify operations to a greater extent across countries, and/or (iii) (re)locate more production within/into countries politically closer to the main country of sales (“friend-shoring”) in the next five years than in the last five years.[5] The near-shoring of production (or producing “local for local”) was already a fairly common trend which is now expected to intensify.[6] The friend-shoring of production, by contrast, had not been so evident in the past but was expected to become much more commonplace – 42% of firms envisage pursuing such a strategy, up from just 11% in the previous five years. Looking at the findings in detail, it is primarily the firms that were already near-shoring or expecting to near-shore that now also anticipate diversifying and friend-shoring some of their operations. Furthermore, these actions are broadly equally associated with firms saying they envisage moving more production into and those saying they envisage moving more production out of the EU.

Chart A
Past and future trends in location of production/operations

(percentages of responses)

Source: ECB.
Notes: Responses to the question “How has the location of your company’s production/operations changed in the last five years and how do you expect it to evolve in the next five years?” Respondents could choose one or more of the following replies: Tendency to (i) move more production/operations into the EU, (ii) move more production/operations out of the EU, (iii) (re)locate more production/operations geographically closer to the final production location or country of sales (“near-shoring”), (iv) diversify production/operations to a greater extent across countries, (v) (re)locate more production/operations to countries politically closer to the main country of sales (“friend-shoring”). The category “Neither into nor out of the EU” captures the responses of firms which did not signal a tendency to move production either into or out of the EU.

Geopolitical risk was the most frequently cited factor behind decisions to (re)locate production into the EU, while demand and cost factors motivate moves out of the EU (Chart B). Firms were given a list of factors and asked which of these were important for them in relation to recent or planned future moves of production/operations into or out of the EU. Almost half cited geopolitical risk/uncertainty as an important factor relating to recent or planned future moves into the EU. This highlights a shift in firms’ priorities from simply focusing on cutting costs or improving efficiency to also factoring resilience into their decisions. The next most important factor for moving into the EU was climate change (transition to net zero). Regulation, financial incentives and local content requirements were, broadly speaking, equally likely to be factors relevant for moves into or out of the EU. At the same time, labour (cost/shortages/skills), energy costs and the changing geographical distribution of sales were the main factors for moving production out of the EU.

Chart B
Importance of factors for moving production/operations into or out of the EU

(percentages of responses)

Source: ECB.
Notes: Responses to the question “Which of the following factors do you consider particularly important in relation to recent or planned future moves of production/operations into or out of the EU?” Respondents could choose any of the above replies that applied to their company. Responses are ranked according to the net score (“into the EU” less “out of the EU”).

As regards input sourcing, firms expect to increasingly near-shore, diversify and/or friend-shore their supply chains in the next five years, with some increase in the share of sourcing from inside the EU (Chart C). Companies were asked how the geographical distribution of their cross-border sourcing of inputs had changed in the last five years and how they expected it to evolve in the next five years. The replies indicate that a higher share of firms expect to increasingly source inputs from inside the EU in the next five years than in the last five years, while there was no increase in the share of companies saying they expected to source more inputs from outside the EU.[7] A higher share of firms said they expected to increasingly source inputs (i) geographically closer to the country of production (“near-shoring”), (ii) from a more diverse range of suppliers in different countries, and/or (iii) from countries politically closer to the country of sales (“friend-shoring”) in the next five years than they had in the last five years (up from 55% to 80%). Diversifying and near-shoring the sourcing of inputs were already fairly common and were expected to become more so in the coming years. By contrast, the friend-shoring of input sourcing had, as was the case with the location of production, not been typical in the past but was expected to become much more so (with 42% of responding firms expecting to pursue such a strategy compared with just 9% having done so in the past). The increase in the share of firms expecting to pursue any or all of these strategies was negligible among firms who also said they envisaged sourcing more inputs from outside the EU, but it was significant for firms who also said they expected to source more inputs from inside the EU. Accordingly, an expected increase in the near-shoring, diversification and/or friend-shoring of input sourcing appears to be tilting these firms, on average, towards greater use of EU suppliers.

Chart C
Past and future trends in input sourcing

(percentages of responses)

Source: ECB.
Notes: Responses to the question “How has the geographical distribution of your company’s cross-border sourcing of inputs changed in the last five years and how do you expect it to evolve in the next five years?” Respondents could choose one or more of the following replies: Tendency to increasingly source inputs (i) from inside the EU, (ii) from outside the EU, (iii) geographically closer to the country of production (“near-shoring”), (iv) from a more diverse range of suppliers in different countries, and (v) from countries politically closer to the country of sales (“friend-shoring”). The category “Neither into nor out of the EU” captures the responses of firms which did not signal a tendency to source a higher share of inputs from within or outside the EU.

China was the dominant source of critical inputs and also the country most frequently mentioned in terms of perceived risks, either to the company’s own supply chain or that of its sector (Chart D). In total, 55% of respondents said that their company sourced critical inputs (fully or heavily) from a specific country or countries.[8] Of these, almost all (52% of all respondents) said that the supply of critical inputs from at least one of those countries was subject to elevated risk.[9] In turn, a large majority of these identified China as that country (or one of those countries), with all of them considering this an elevated risk. Coming a distant second, only 8% of respondents said that their company sourced critical inputs from the United States, and only 5% flagged this as a particular risk. As to those countries which posed – or could pose – a risk to supply chains in their sector more generally, two-thirds of all respondents cited China, while the United States, Taiwan, India, Turkey and Russia were also each cited by more than 10% of respondents.

Chart D
Supply chain dependency and risks, by country

(percentages of responses)

Source: ECB.
Notes: Responses to the questions (i) “Does your company presently source critical inputs which depend (fully or heavily) on supply from a specific country; and if so, which one(s)?”, (ii) “Do you consider the supply of critical inputs from this country or any of these countries to be subject to elevated risk?”, and (iii) “More generally, which countries (if any) pose – or could pose – risks to supply chains in your sector?” Countries mentioned by three or more respondents are included in the chart. Many more countries were mentioned by just one or two respondents.

Most firms said that it would be very hard for them to substitute critical inputs originating from countries deemed to be an elevated risk. Among the respondents who said that their company sourced critical inputs (heavily or fully) from a specific country they considered an elevated risk, almost two-thirds said that if those critical inputs were suddenly no longer available, replacing them with inputs originating from elsewhere would be “very hard”, while nearly a third said it would be “hard” (Chart E, panel a). In this context, two-thirds said that their company mainly sourced these critical inputs directly from firms located in the country concerned, and one-sixth said that they mainly sourced them directly from their own facilities in the country concerned, with the remainder sourcing them mainly via distributors.
Most companies were, however, implementing strategies to reduce their exposure to the country or countries concerned (Chart E, panel b). Among the same respondents who said that their company sourced critical inputs (heavily or fully) from a specific country they considered an elevated risk, only three said that they had neither adopted, nor intended to adopt, a strategy to reduce their exposure. Almost 40% said that they were pursuing a strategy to mostly source the same inputs from other countries outside the EU, 20% that they were pursuing a strategy to mostly source the same inputs from other countries inside the EU, while 15% said that they were pursuing other strategies, such as holding more inventory, diversifying their input sources, monitoring risk more closely, changing the composition of their product(s) or closing down some production capacity. Just under 20% had not yet adopted a strategy but were considering doing so in the near future.

Chart E
Ease of substitution of inputs and strategies to reduce country exposure

(percentages of responses)

Source: ECB.
Notes: Responses to the questions (i) “In case these inputs were suddenly no longer available, how easy would it be to substitute them with inputs originating elsewhere?” and (ii) “Is your firm implementing or is it planning to implement a strategy to reduce exposure to the country – or countries – concerned?” The percentages of responses refer only to those who said that their company presently sourced critical inputs which depended (fully or heavily) on supply from a specific country and that they considered to be subject to elevated risk. A small number of respondents gave more than one response to question (ii) and these responses have been weighted accordingly.

On balance, the impact of changes in production location and cross-border sourcing of inputs on EU activity was perceived to be limited, while the impact on employment located in the EU was considered significant. Companies were asked to assess the impact of changes in production location and cross-border input sourcing on their company’s activity, employment and selling prices in the EU in the last five years (Chart F, panel a) and what they expected in the next five years (Chart F, panel b). In terms of activity, a large share of respondents said that these changes were likely to influence the share of their company’s value added generated in the EU in the next five years compared with the last five years. That said, those anticipating higher and lower shares broadly balanced out. Respondents did, however, see the impact of these changes as increasingly negative for the share of their company’s employment located in the EU. This would be consistent with companies citing the cost of – and access to – labour and skills as the most important factor in their recent or planned future decisions to move production or operations out of the EU.

Chart F
Overall impact of production location and input sourcing decisions on activity, employment and prices

(percentages of responses)

Source: ECB.
Note: Responses to the question “What has been/will be the impact of changes in production location and/or cross-border input sourcing on your company’s activity, employment and selling prices in the EU?”

Changes in production location and cross-border sourcing of inputs led to higher prices, but this impact was expected to ease slightly in the next five years. 60% of contacts said that changes in production location and/or cross-border input sourcing had pushed up their average prices in the last five years, compared with just 5% who said that their prices had fallen as a result. Looking ahead to the next five years, the share of firms expecting upward pressure on prices was still high (45%) but lower than when looking back at the last five years. One interpretation would be that moves to make business operations and supply chains more resilient are costly per se, but the impact on costs, and therefore prices, can be mitigated if these changes are carefully planned. In this regard, past moves may to a greater extent have been unplanned and sudden (e.g. in response to the pandemic or Russia’s invasion of Ukraine) and therefore more costly than intended future moves to respond to production and supply chain risks.

Table A
Share of company sales, production and input sourcing outside the EU across the survey sample

Less than 20%
20-50%
More than 50%

Sales
16
27
20

Production
20
24
18

Input sourcing
18
22
22

Source: ECB.
Note: The numbers in the table refer to the number of responding companies in each category.

 
Footnotes:

See the blog posts by Di Sano, M., Gunnella, V. and Lebastard, L., “Deglobalisation: risk or reality?”, ECB, 12 July 2023, and Koh, S.-H., MacLeod, C. and Rusticelli, E., “Shifting sands: trade partner patterns since 2018”, OECD, 12 July 2023.
The EBRD survey focuses on 15 EBRD countries; see “Global supply chains in turbulence”, Transition report 2022-23, EBRD, 2022. The Banca d’Italia survey focuses on Italian firms; see Bottone, M., Mancini, M. and Padellini, T., “Navigating Fragmentation Risks: China Exposure and Supply Chains Reorganization among Italian Firms”, Banca d’Italia, 2023. The Deutsche Bundesbank survey focuses on German firms (data collection completed and analysis forthcoming).
The survey was sent to companies with which the ECB maintains regular contact as part of its gathering of information on current business trends. A total of 65 responses were received during July-August 2023. This is a relatively small sample in terms of the overall number of firms, but the aggregate value added of these firms generated globally is equivalent to around 5% of euro area GDP.
With regard to Brexit, respondents were asked to ignore changes brought about solely by the reclassification of the UK from an EU to a non-EU country if there had been no physical change in the location of production or input sourcing.
42% of firms said they had near-shored, diversified and/or friend-shored production in the last five years, while 74% said they expected to do so in the next five years.
28% of firms said they had near-shored production in the last five years, while 49% said they expected to do so in the next five years. It is striking that this first number is identical to the share that, in a similar ECB survey in 2016, replied that it had become more common in the past five years for companies in their sector to produce/operate in the local markets where goods and services are sold. See the box entitled “Global production patterns from a European perspective: insights from a survey of large euro area firms”, Economic Bulletin, Issue 6, ECB, 2016.
This result is driven mainly by companies that are truly global (with more than 50% of their sales, production and input sourcing presently outside the EU) and by companies that import (either intermediate or final) products into the EU.
In the questionnaire, it was clarified that “By ‘critical’ inputs we mean goods without which a significant part of your business activity could not be completed or would suffer significant delays or the quality of the good or service produced by your firm would significantly decrease.” Respondents were asked to indicate up to five countries, but most named just one or two.
In the questionnaire, it was stated that “Such risks could include the risk of sudden escalation of economic or political tensions between countries (e.g. China and the US) resulting in bans on the import or export of specific products, a tightening of local content requirements (e.g. in the context of the EU/UK trade agreement), sourcing from countries at (risk of) conflict, risks stemming from climate change…etc.”

 
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Blog post by Clémence Berson and Vasco Botelho, Senior Economists | The euro area labour market is in pretty good shape despite the recent economic shocks. The share of people in the labour force has never been higher. Who are these new workers? We find that the labour force has changed quite a bit in terms of gender, age, education level and national origin over the last two decades.

But first, let’s look at more recent developments. When the pandemic hit, millions of workers lost their jobs. More than six million were discouraged or decided to leave the labour market for other reasons. This led to a 2.5 percentage point drop in the labour force participation rate (LFPR).[1] In the summer of 2020 only 62.1% of the population aged from 15 to 74 had a job or was looking for one. This compares to 64.6% before the pandemic broke out in early 2020.
This gloomy situation didn’t last long. The euro area economy recovered quickly, thanks in part to widespread policy support measures such as job retention schemes. Many people came back to the labour market, which brought the participation rate back to pre-pandemic levels as early as the fourth quarter of 2021. A year and a half later, in the second quarter of 2023, the participation rate hit 65.5%, 0.9 percentage points above its pre-pandemic peak. At that point in time around 3.8 million new workers were attached to the labour market. Nevertheless, participation rates in the United States (69%) and United Kingdom (68%) suggest that there is still scope for further increases.
Before and after the pandemic: who joined the labour force
What drove the changes in the labour participation rate in the euro area? We focus on gender, age, education level and nationality groups in Chart 1. Comparing the quarter before the pandemic outbreak to mid-2023, we first consider the increases in the LFPR for each group (yellow bars). Second, we examine composition effects, noted by changes in the relative size of each group in the working age population (red bars). For example, as the population grew older, the share made up of workers aged 25 to 54 shrank, and the share made up of older workers increased. This means that even though more workers aged 25 to 54 entered the labour market, their overall contribution to the LFPR was negative as their share of the population faded. The overall negative contribution by this group of workers is represented in the age category of Chart 1 by the blue bar.

Chart 1
Contributions to the change in the LFPR between Q4 2019 and Q2 2023

Percentages

Source: Eurostat, European Union Labour Force Survey (EU LFS), Integrated Economic and Social Statistics, and authors calculations.

Since the fourth quarter of 2019, women, older workers aged 55 to 74, highly educated persons[2], and immigrants have contributed most to the increase in the euro-area LFPR. Women mainly increased their participation rate, while other socio-demographic groups increased both their participation in the labour market and their relative size in the working age population. Men, younger workers aged 15 to 24 and natives also contributed positively, but to a lesser extent.
People are retiring later
The euro area population aged significantly over the last decades. The average age was 42.9 years in 2002 and 45.2 years in 2022. With the ageing of the baby boomer generation, older workers became more prominent in the working age population, with their relative share gradually increasing from 27.1% in 2002 to 33.8% in 2022. The ageing of the working population has offset increases in the LFPR. In fact, the LFPR would be 1.6 percentage points higher in 2023 if not for the effects of population ageing (see Chart 2). This is on account of older workers displaying a lower labour market attachment than workers aged 25 to 54.

Chart 2
Impact of ageing on the euro area LFPR over time

Percentage

Source: Eurostat, European Union Labour Force Survey (EU LFS), Integrated Economic and Social Statistics, and authors calculations. The age-adjusted labour force participation rate keeps the working age population shares constant by age groups as they were in 1997.

At the same time, older workers have become significantly more attached to the labour force, in part due to pension reforms and increased life expectancy (see Chart 3). The participation of workers aged 25 to 59 is considerably higher than that of both the younger and older cohorts. We note a very large increase in the participation rate of workers aged 50 to 64 over the last two decades, which compensated the downward impact of population ageing.

Chart 3
Euro-area LFPR by age

Percentage

Source: Eurostat, European Union Labour Force Survey (EU LFS), Integrated Economic and Social Statistics, and authors’ calculations.

More women working or on the job market
Women have substantially increased their attachment to the labour market in recent decades. Their LFPR increased from 48.1% in 1997 to 60.8% in the beginning of 2023. At the same time, the LFPR of men has been broadly stable between 68% and 70% since 1997. This is in part thanks to policy measures aimed at increasing female employment, which include subsidised childcare services for working parents with small children, tax changes and improved leave policies.
Euro-area workers tend to be more educated over time, with the share of workers with an undergraduate degree or higher increased from 22% in 2002 to 37% in 2022. And higher levels of education tend to lead to higher levels of participation in the labour market, including in the euro area. Around 80% of people with an undergraduate degree or higher are active in the labour market, which compares to less than 50% among persons that have not finished a secondary school degree or similar. As the proportion of more highly educated workers in the labour force increases, participation rates tend to mechanically increase.
Workers move across borders for new jobs
Migration, too, supports an increase in labour supply in the euro area. The share of foreign workers in the working population has risen steadily, from 6.9% in 2005 to 11.5% in 2023. 60% of these immigrant workers come from non-EU countries. Labour mobility within the EU also helped increase labour participation rates. EU citizens often move across euro-area countries for work-related reasons. In fact, the LFPR for immigrants from within the EU increased from 68.8% in 2005 to 74.7% in the second quarter of 2023.[3]
The LFPR’s rise above pre-pandemic levels indicates a growing supply of workers. Older, female, highly educated and foreign workers are still the main contributors to the rise in the LFPR. Both historical trends and comparisons to other jurisdictions suggest that women and older workers will continue to drive future increases.[4] Population ageing will of course continue to reduce the LFPR, as workers simply become too old to work. But the overall trend of a growing workforce remains. This should have a mitigating effect on the tightness of the labour market over the longer term.[5]
 
The views expressed in each article are those of the authors and do not necessarily represent the views of the European Central Bank and the Eurosystem.
 
Footnotes:

The labour force participation rate is the share of persons in the population aged from 15 to 74 who are working or actively searching for a job.
Low-educated persons have a less than primary, primary, and lower secondary education level, medium-educated persons have an upper secondary and post-secondary non-tertiary education level and high-educated persons have a tertiary education level.
For comparison, the LFPR for nationals stood at 65.3% in the second quarter of 2023, while the LFPR for immigrants from outside the EU has remained stable at around 64%.
The labour force participation rate for women aged from 15 to 74 in the US stood at 63.1% in the second quarter of 2023, slightly higher than for the euro area. For the US, the labour force participation of working-age women reached its historical peak at around 65% at the turn of the millennium, and progressively decreased until it reached 62.8% in the first quarter of 2020. The US labour force participation for women aged from 15 to 74 plunged to 60.5% during the pandemic and is now progressively recovering, surpassing its pre-pandemic levels in the second quarter of 2023.
Another channel to be considered is the rise of remote working. This provided the opportunity to work without the need to commute and, in this way, incentivised these persons to be more active in the labour market. Recent data from the ECB Consumer Expectations Survey (CES) points to a decline in the number of discouraged workers and to a rebound in the labour force participation rate following the pandemic. In particular, the box article titled “The labour market recovery in the euro area through the lens of the ECB Consumer Expectations Survey”, ECB Economic Bulletin, Issue 2/2022, notes that the increase in the participation rate has in part been the result of transitions of respondents who were not actively searching for work directly into employment. The recovery in the labour force participation rate following the onset of the pandemic might also have been affected by a structural shift in preferences on work from home (WFH) patterns. In a recent box article titled “How people want to work – preferences for remote work after the pandemic”, it is noted that, while both employers and workers are still adapting to the changing WFH patterns, it appears likely that remote work will remain in substantially higher demand than before the onset of the pandemic. Regarding health-related labour market discouragement from the pandemic, another box, “COVID-19 and retirement decisions of older workers in the euro area”, showed that older workers who displayed a poorer state of health were more likely to retire early.

 
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After having dealt successfully with the challenges of the pandemic and the energy price shock triggered by Russia’s war in Ukraine, Europe faces the difficult task of restoring price stability while securing strong and green growth over the longer term. Global shifts from geoeconomic fragmentation and the current impact of climate change have introduced new economic challenges that add to long-standing growth problems and could stall convergence.
Cooling headline inflation is providing some relief to households and firms. Easing commodity prices and supply constraints have been mainly responsible, but persistent core inflation has proved more difficult to tackle. Central banks across Europe have tightened their monetary policies substantially, and governments are scaling back fiscal support.
The lingering effects of last year’s energy price shocks and tighter policies are also contributing to a growth slowdown this year. Countries with larger manufacturing or energy-intensive sectors are slowing more than those that depend on services and tourism. Overall, the growth forecast is shaped by the opposing forces of tighter macroeconomic policies and the recovery in real incomes, as inflation falls and wages rise.
The outlook for Europe is for a soft landing, with inflation declining gradually. Growth in the region overall is expected to slow to 1.3 percent in 2023 from 2.7 percent last year, and improve to 1.5 percent in 2024. Within advanced European economies, service-oriented economies will recover faster than those with relatively larger manufacturing sectors, which face low external demand and are more exposed to high energy prices. Similarly European emerging market economies will experience a mild recovery in 2024, but the extent will vary across countries depending on the energy intensity of production, service sector orientation, and, especially for the easternmost countries, disruption of trade relationships with Russia.
Monetary policy is approaching the end of the tightening cycle. A moderate fiscal consolidation is projected for 2023, picking up in 2024. Although a robust US economy is an important backstop to global demand, weaker activity in China, additional commodity price shocks, and the materialization of financial stability risks are important downside risks to growth. Tighter monetary policy has elevated credit costs and weakened household and corporate real estate balance sheets. Even though banks’ capital buffers are healthy, they could become strained under an adverse scenario.
Inflation is expected to recede only gradually over the forecast period. While subdued domestic demand in 2023 and lower commodity prices will be passed through to core inflation, the projected recovery in real incomes and still-strong labor markets will slow the pace of disinflation. Most countries are not expected to reach inflation targets before 2025. Sustained nominal wage growth above inflation and productivity growth rates is a key risk to disinflation, especially in European emerging market economies. Inflation could become entrenched, requiring additional policy tightening and potentially leading to stagflation.
Europe is facing these risks at a time when structural shifts from geopolitical fragmentation and climate change are compounding already-existing long-term growth problems. Europe’s medium-term growth prospects have declined for some time, with weakening productivity growth a key factor. The new challenges of higher and more volatile energy costs and changes in supply and trade relationships are disrupting production structures. They add to well-known factors (such as population aging and labor supply  constraints) that have stymied potential growth.
For most European emerging market economies, the combination of weak productivity and a loss of wage-cost competitiveness could stall economic convergence. In these circumstances, stabilization of public debt trajectories could also prove challenging, especially in high-debt countries where debt needs to be outright reduced.
In this context, economic policies should aim to restore price stability and strengthen economic fundamentals. History suggests that it takes several years for inflation to return to normal levels after an inflationary episode.
Maintaining a restrictive monetary policy stance is thus paramount to securing the return of inflation to target within a  reasonable timeframe. Uncertainty about inflation persistence is large, and the cost of easing too early is substantial. The required tightness of monetary policy varies with country circumstances, but many central banks will have to maintain high policy rates for some time.
Meanwhile, countries should step up their efforts to rebuild or preserve fiscal buffers while protecting critical spending needs. By reducing deficits, fiscal policy complements monetary policy in the fight against inflation. Remaining untargeted energy support should be phased out and expenditure and revenue inefficiencies tackled. But these savings may not be enough to address spending needs on education, demographic headwinds, infrastructure, and climate change while also reining in large deficits. Moreover, public debt-to-GDP ratios are projected to increase over the medium term in most European emerging market economies, as a result of sluggish growth and rising debt service cost. These countries will also need to better rationalize expenditure and mobilize revenues to bring public debt ratios on a downward path. For EU economies, strengthening the capacity to absorb EU grants for climate-resilient infrastructure, social protection, and accelerating the green transition continues to be a priority.
Macrofinancial policies should ensure that emerging risks to stability are monitored and contained. Banks have increased their profits from rising net interest margins. These resources should be used to raise capital buffers, including through regulatory requirements. Given banks’ credit exposure to the real estate sector, robust buffers are even more important at a time, like the current one, when the property market faces structural and cyclical headwinds.
Structural policies remain crucial for achieving strong, green, and evenly distributed growth. Reforms should focus on removing barriers that prevent economic innovation and dynamism. A strengthened business environment with policies that encourage investment and spending on research and development will enhance competition that increases productivity. In European emerging market economies, attracting investment also requires strengthening public sector management and governance; better job matching; and reliable digital, transportation, and energy infrastructure. Europe needs to preserve its most important growth asset—the single market. Sectoral policies can play a role (when network externalities are present) by raising research and development spending and opening access to new technologies, leading to increased efficiencies and facilitating the
green transition. But such policies need to be deployed surgically and with care, avoiding costly subsidy races or use of distortionary tariffs. International collaboration on climate change, including a global carbon price floor, is essential to reducing emissions while maintaining competitiveness. Recent agreements on strengthening Europe’s emissions trading system are an important step toward achieving the European Union’s climate goals.
 
To read the full report, please click here.
 
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What is Combined Transport Directive and why do we need this Directive?
The Combined Transport Directive (92/106/EEC) is one of the key EU legal instruments that directly aim at reducing the negative externalities of freight transport, such as CO2 and other emissions, congestion, noise and accidents, by supporting a shift from long-distance road transport to rail, inland waterways and maritime transport.
Road transport is responsible for the majority of negative externalities in transport in the EU, both because it is by far the most common mode of transport (74.4% of intra-EU inland transport and 53.3% of all intra-EU transport in 2020), and because it today causes more externalities per tonne kilometre of freight transport than rail, inland waterways or short sea shipping. A shift from road-only transport to intermodal transport would help to reduce the negative externalities of transport, while still ensuring the flexibility needed for freight services to reach every point in EU thanks to road feeder legs between the terminal and place of loading/unloading.
However, intermodal transport is often unable to compete with road-only transport on medium and shorter distances due to administrative hurdles, transhipment costs, and an incomplete internalisation of external costs. Therefore, the Combined Transport Directive creates a support framework to increase the competitiveness of intermodal and combined transport and thereby promote a shift away from road-only transport.
 
Which transport operations would the amended Directive promote?
The proposal provides a support framework for intermodal and combined transport operations.
Intermodal transport is a type of multimodal freight transport, in which goods are carried within a closed loading unit such as container, swap-body or semi-trailer, and the closed loading unit is transhipped between different transport modes without the goods themselves being handled.
Combined transport is a type of intermodal transport that meets specific conditions set out in this Directive; in particular it concerns operations that reduce by 40% the negative externalities compared to road-only operations. This essentially means operations for which the major part of a transport operation is carried out by rail, inland waterways or sea (short sea shipping), while the much shorter initial and final road legs act as feeders for the loading units between and place of loading/unloading and the terminal.
The proposal includes three provisions for promoting intermodal transport in general:

It reiterates that similarly to unimodal transport; all intermodal transport is free of authorisations and quotas.
It establishes a new obligation on Member States to adopt a national policy framework for facilitating the uptake of intermodal transport.
It establishes a transparency requirement for intermodal transhipment terminals to ensure that potential customers can easily find out which services and facilities are available.

For the combined transport specifically, the proposal includes two additional support measures:

It establishes a new EU-wide exemption from weekend, holiday and night driving bans for the short road legs of combined transport to ensure better use of terminal and non-road infrastructure capacity.
It establishes a target for Member States to reduce the average door-to-door cost of combined transport operations: a reduction by at least 10% within 7 years.

All existing EU-wide regulatory measures that are today applicable to combined transport will also remain in force. This includes the ban on quotas and authorisations, equivalent treatment of international combined transport with international road transport as regards use of non-resident hauliers, special definition of own-account transport on road legs, and a ban on price regulation.
 
Why is the Combined Transport Directive being revised?
The average external cost for rail transport and inland waterway transport per tonne-km (tkm) are almost three times lower (at respectively EUR 0.013 per tkm and EUR 0.019 per tkm), compared to the average external cost for heavy good vehicles (HGVs) at EUR 0.042 per tkm. Accidents (29.7%) and congestion (18.8%) are the biggest cost components for any given HGV transport operation, and these cannot be reduced by decarbonisation, only by reducing the relative share of road transport.
The Combined Transport Directive was last amended in 1992. The Commission presented two previous proposals to update the Directive, in 1998 and in 2017; in both cases, the amendment proposal was withdrawn by the Commission as no satisfactory agreement was reached by the co-legislators. Some parts of the Directive are however outdated, the definition and eligibility criteria are causing the industry practical problems, and support is not as effective as it could be. With the European Green Deal, the Commission proposed again to amend the Directive to provide a more ambitious support framework for modal shift to make a real difference.
 
How will the Directive benefit intermodal operations?
The essence of the Directive is to increase the uptake of intermodal transport and in particular, improve the competitiveness of these intermodal operations that contribute the most to making freight transport more sustainable. To achieve this, the Directive on the one hand defines such operations and, on the other hand, establishes a framework of regulatory and non-regulatory measures to support them.
The proposal will replace the current partly ambiguous definition, which is problematic for many operators, with a completely new approach ensuring that support will focus in particular on combined transport operations defined as intermodal operations reducing by at least 40% the negative externalities. Digital platforms established under the electronic freight transport information Regulation (eFTI) will provide a calculation tool allowing transport organisers to prove whether their operation is eligible for specific combined transport support. Transport organisers can digitally fill in the usual transport information using an accredited eFTI platform that will then automatically calculate and show eligibility for the combined transport support regime, both to the transport service providers as well as to authorities. There will be no more issues with different interpretations at national or local level about eligible operations.
In addition, the Directive sets a specific target for Member States to improve the competitiveness of combined transport. For this, Member States have to assess the barriers hindering the uptake of combined transport and ensure that national policy frameworks allow for an overall reduction of at least 10% of the average door-to-door cost of combined transport operations.
Furthermore, the Directive facilitates market entry by making the information about national support measures easily accessible. It also sets obligations for terminal operators to publish information about the services they provide.
 
What is the link between the amendment of the Combined Transport Directive and other EU policies impacting freight transport?
The Combined Transport Directive complements the legislation for rail, inland waterways, maritime and road transport that liberalises and regulates the internal market. Liberalisation also applies to a combination of transport modes, while sectoral rules continue to apply to ensure the safety and market functioning of each mode. For example, the two proposals that are part of the Greening Freight Package, the Rail Capacity Regulation and the Weights and Dimensions Directive for road transport, are both relevant for individual legs of intermodal and combined transport. Similarly, all procedural as well as substantial State aid and public procurement rules will continue to apply for any support measures that Member States plan to take to reach their target under the amended Combined Transport Directive.
In addition, the TEN-T Regulation, currently being discussed by the European Parliament and Council, will be relevant for the uptake of intermodal and combined transport as it ensures the development of modal infrastructure, as well as multimodal freight terminals necessary for the transhipment between the modes.
 
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The EU-US Task Force on Energy Security met for the 11th time on October 31, 2023, convened by co-chairs Amos Hochstein, Special Presidential Coordinator for Global Infrastructure and Energy Security, and Björn Seibert, Head of Cabinet of European Commission President Ursula von der Leyen, with the participation of Sarah Ladislaw, Special Assistant to the President and Senior Director for Climate and Energy at the US National Security Council, and Ditte Juul Jørgensen, European Commission Director-General for Energy.
The discussion focused on reviewing the diversification of Europe’s natural gas supply sources and the growing liquefied natural gas (LNG) trade between the United States and Europe, with the US now by far the largest supplier of LNG to Europe. The sides also discussed AggregateEU, Europe’s gas demand aggregation and joint purchasing mechanism, which has had success this year enabling European companies to improve their security of supply and negotiate competitive prices.
The discussion also touched on the EU’s concrete steps to further reduce gas demand, including through energy efficiency measures and policy support, expanded heat pump and smart thermostats deployment, increased use of renewable energy, and structural changes in Europe’s industrial demand patterns.
The sides also discussed how the EU has responded collectively and effectively to Russia’s aggression in Ukraine and weaponisation of Europe’s energy supplies, by accelerating the clean energy transition, diversifying supplies, and saving energy. The EU drastically reduced its dependence on Russian fossil fuels, including by: phasing out coal imports; reducing oil imports by 90 percent; and reducing gas imports from 155 billion cubic meters (bcm) in 2021 to around 80 bcm in 2022 and to an estimated 40 to 45 bcm in 2023.
The EU-US Task Force on Energy Security builds on long-standing transatlantic cooperation. It is an essential tool in our transatlantic cooperation to ensure energy security in Europe. As reconfirmed by leaders at the EU-US summit on October 20, 2023, the Task Force will continue to advance the energy transition to climate neutrality and bolster energy security. The Task Force also affirmed its commitment to monitor the energy security situation and reconvene when necessary.
 

Compliments of the European Commission.
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The Commission welcomes today’s agreement by G7 leaders on International Guiding Principles on Artificial Intelligence (AI) and a voluntary Code of Conduct for AI developers under the Hiroshima AI process. These principles and the voluntary Code of Conduct will complement, at international level, the legally binding rules that the EU co-legislators are currently finalising under the EU AI Act. President of the European Commission, Ursula von der Leyen, was among those who subscribed to the G7 leaders’ statement issued by the 2023 Japan G7 presidency.
President von der Leyen, said: “The potential benefits of Artificial Intelligence for citizens and the economy are huge. However, the acceleration in the capacity of AI also brings new challenges. Already a regulatory frontrunner with the AI Act, the EU is also contributing to AI guardrails and governance at global level. I am pleased to welcome the G7 international Guiding Principles and the voluntary Code of Conduct, reflecting EU values to promote trustworthy AI. I call on AI developers to sign and implement this Code of Conduct as soon as possible.”
Ensuring safety and trustworthiness of the technology
The eleven Guiding Principles adopted by the leaders of the seven countries and the EU, which make up the G7, provide guidance for organisations developing, deploying and using advanced AI systems, such as foundation models and generative AI, to promote safety and trustworthiness of the technology. They include commitments to mitigate risks and misuse and identify vulnerabilities, to encourage responsible information sharing, reporting of incidents, and investment in cybersecurity as well as a labelling system to enable users to identify AI-generated content.
Informed by the results of a stakeholder survey, these principles have been jointly developed by the EU with the other G7 members, under the Hiroshima Artificial Intelligence Process. The Guiding Principles have in turn served as the basis to compile a Code of Conduct, which will provide detailed and practical guidance for organisations developing AI. The voluntary Code of Conduct will also promote responsible governance of AI globally. Both documents will be reviewed and updated as necessary, including through inclusive multistakeholder consultations, to ensure they remain fit for purpose and responsive to this rapidly evolving technology. The G7 leaders have called on organisations developing advanced AI systems to commit to the application of the International Code of Conduct. The first signatories will be announced in the near future.
Background
The G7 Hiroshima Artificial Intelligence Process was established at the G7 Summit on 19 May 2023 to promote guardrails for advanced AI systems on a global level. The initiative is part of a wider range of international discussions on guardrails for AI, including at the OECD, the Global Partnership on Artificial Intelligence (GPAI) and in the context of the EU-U.S. Trade and Technology Council and the EU’s Digital Partnerships.
Since first announcing its intention to work on a Code of Conduct at the TTC Ministerial of 31 May 2023, the European Commission actively worked with key international partners in the G7 to develop the principles and the Code of Conduct on AI. These international commitments are consistent with the legally binding rules currently being negotiated as part of the more comprehensive Artificial Intelligence Act (EU AI Act), which will apply in the EU.
The proposal for the EU AI Act will guarantee the safety and fundamental rights of people and businesses, while strengthening AI uptake, investment and innovation across the EU. The AI Act will provide risk-based, legally binding rules for AI systems that are placed on the market or put into service in the Union market.
 
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Remarks by the First Deputy Managing Director, Gita Gopinath at the Ninth IMF-WB-WTO Trade Research Conference
Good morning. It is a pleasure to open the ninth IMF-World Bank-WTO Trade Research Conference.
Let’s begin by taking stock of where we are. World trade growth is historically low, with no signs of improvement. In fact, it is projected to decline from 5.1 percent in 2022 to 0.9 percent in 2023.
Meanwhile, the global trading system is facing several challenges: from geopolitical tensions and fragmentation, to industrial policies, to climate change.
As we prepare to discuss these challenges over the next two days, let me outline what we at the IMF see in the global trade landscape and how the international community can work together toward solutions.
Trade Policies and Rise in Trade Barriers
Weak global trade growth is likely to reflect not only the path of global demand, but also growing trade policy uncertainty and rising trade barriers.
Last year almost 3,000 trade restrictions were imposed—nearly 3 times the number imposed in 2019.
In addition, foreign direct investment is now increasingly driven by geopolitical preference rather than business fundamentals.
This points to a shift toward inward- and alliance-oriented policies, which often are ineffective.
For instance, a recent study by IMF and World Bank economists shows that US imports of Chinese goods subject to the 2018-2019 tariffs have been primarily replaced by exports from Vietnam and Mexico of firms that are intricately linked to China’s supply chains.
Rise in Industrial Policy
Of course, the surge in government intervention is tightly linked to a resurgence in industrial policy. In 2023 alone, the number of industrial policy measures increased nearly sixfold.
Most of that increase is driven by advanced economies, and has largely been motivated by strategic competitiveness, climate, or national security objectives.
Emerging markets have also increased their use of industrial policies, although they have relied less on subsidies and more on trade restrictions such as tariffs and export controls.
While industrial policies can help address market failures, they have historically been costly and often failed.
Many of these policies have an explicit trade policy component. Even in the absence of discriminatory features, industrial policies may still distort trade and FDI patterns, create negative spillovers, and risk retaliation.
According to one study, when the US, China, or the European Union put in place a subsidy measure, there’s a 73% chance that one of the other countries will retaliate within 12 months.
Design matters and practical steps are needed to promote a more common perspective across governments on the use of industrial policies.
Fragmentation
Stepping back, if these trends are not reversed, the risks could be significant.
Research by the IMF, WTO, and others shows that fragmentation could dramatically impact the world economy, costing up to 7 percent of GDP and possibly more for certain countries.
More recent IMF research which looks specifically at the impact of fragmentation on commodities shows the effects can still be sizable. Low-income countries could face long-term GDP losses of 1.2 percent on average, largely stemming from disruptions to agricultural exports. For some countries, especially commodity-dependent economies, losses could exceed 2 percent.
In addition to exacerbating food security concerns, fragmentation could also hinder the global green transition, as some critical rare minerals are highly concentrated. In fact, the three biggest suppliers of minerals account for about 70 percent of global production, on average. When unprecedented global cooperation to fight climate change is needed most, fragmentation threatens to derail our efforts.
Solutions
So, how do we move forward amid these challenges? And how can trade policy help?
First, we must secure the future by promoting trade openness and predictability, in collaboration with our partners at the World Bank and the WTO.
This includes addressing longstanding issues like subsidies and tariffs through strengthened trade rules. It also includes securing open markets in modern areas of the global economy, like services and e-commerce. And we look forward to progress towards the restoration of a dispute settlement system.
Second, we need to build supply chains that are resilient to trade shocks. To do that, countries must incorporate best practices such as greater diversification of input sourcing across countries; improving infrastructure, logistics and information systems; and reducing trade costs.
Third, we need to better understand the impact of countries’ unilateral actions. And we need to have clear-eyed discussions and cooperation to mitigate their spillovers.
Greater efforts to promote transparency, analysis, and dialogue on critical areas like subsidies and other industrial policies would go far to mitigate tensions. That is why this year, the IMF, OECD, World Bank, and WTO launched the Joint Subsidy Platform. This  data portal not only offers countries access to information about the nature, size, and economic impact of subsidies, it is also designed to facilitate dialogue on their appropriate use and design.
Conclusion
It is my sincere hope that the ideas shared here today can contribute to this important agenda.
This conference is a testament to what our institutions can achieve together, and the ways that we can shape global policy debates on critical issues in the global economy.
Thank you.
 
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The United States and the European Union and its Member States, representing nearly 800 million citizens, united by our values and bound together by the most dynamic economic relationship on earth, reaffirm our commitment to a transatlantic partnership that delivers for all our Since the last U.S.-EU Summit in June 2021, the world has changed in unprecedented ways, and we have taken ambitious steps in response. Together, we are working to secure peace, stability, and prosperity regionally and across the world, including in our steadfast support for Ukraine. We are deepening our cooperation to reflect the pressing challenges and opportunities of our time—strengthening our economic security; advancing reliable, sustainable, affordable, and secure energy transitions in our economies and globally; reinforcing multilateralism and international cooperation; and harnessing digital technologies to work for, not against, our shared values of democracy and respect for human rights and the rule of law. We are more united than ever.

A.  TOWARD A MORE SECURE AND STABLE WORLD
 
Situation in the Middle East 

We condemn in the strongest possible terms Hamas and its brutal terrorist attacks across Israel. There is no justification for We affirm Israel’s right to defend itself against these heinous attacks, in line with international law, including international humanitarian law. We will work closely with partners in the region to stress the importance of protecting civilians, supporting those who are trying to get to safety or provide assistance, and facilitating access to food, water, medical care, and shelter. We are concerned by the deteriorating humanitarian crisis in Gaza. It is crucial to prevent regional escalation. We call for the immediate release of all hostages and emphasize our shared view that a two-state solution remains the viable path to lasting peace.

Russia’s War against Ukraine and Support for Regional Stability 

The United States and the European Union remain unwavering in our long-term political, financial, humanitarian, and military support to Ukraine and its people as they defend themselves against Russia’s illegal and unprovoked war of We stand together in calling for Russia to end its brutal war and to withdraw its military forces and proxies and military equipment immediately, completely, and unconditionally from the entire internationally recognized territory of Ukraine. We are committed to achieving the widest possible international support for the key principles and objectives of Ukraine’s Peace Formula. Any initiative for a comprehensive, just, and lasting peace in Ukraine must be based on full respect for Ukraine’s independence, sovereignty, and territorial integrity, within its internationally recognized borders and uphold all the purposes and principles of the United Nations Charter.

We are committed to supporting Ukraine for as long as it takes to defend its sovereignty and territorial integrity. We recognize the urgency of ensuring that Russia does not succeed in collapsing the Ukrainian economy and of intensifying our efforts to help ensure assistance meets Ukraine’s highest priority As co-chairs, along with Ukraine, of the Multi-agency Donor Coordination Platform, we are working together with Ukraine as it develops its Ukraine Plan, embedded in its European path, to incorporate a common set of near-term priority economic, rule- of-law, and democratization reforms and a prioritized and well-coordinated approach to recovery and reconstruction assistance and investment. The United States and the European Union, together with other international donors, will continue to provide Ukraine with financing to help achieve these objectives, including to defend, repair, and rebuild its energy sector aligned with EU standards. We acknowledge Ukraine’s commitment and progress in their reform efforts, and underline the strategic importance of its EU accession process.

Russia must cease its aggression and must bear the legal consequences of all its internationally wrongful acts, including compensation for the damage caused to Ukraine. We are united in our determination to ensure full accountability. In light of the urgency of disrupting Russia’s attempts to destroy the Ukrainian economy and Russia’s continued failure to abide by its international law obligations, the United States and the European Union, together with our allies, are convening our experts to explore options to compensate Ukraine in a timely manner for the loss, injury, and damage resulting from Russia’s We are exploring all possible avenues to aid Ukraine, consistent with our respective legal systems and international law. We are also working together with the global community to address the energy, economic, and food security challenges caused by Russia’s war of choice, which are particularly acute in the most vulnerable developing countries. We condemn Russia’s attempts to block food exports and its attacks on Ukraine’s grain storage and shipment facilities since its withdrawal from the Black Sea Grain Initiative. The EU’s Solidarity Lanes remain instrumental in bolstering global food security.

As part of our efforts to aid Ukraine, in the short term, we will explore how any extraordinary revenues held by private entities stemming directly from immobilized Russian sovereign assets, where those extraordinary revenues are not required to meet obligations towards Russia under applicable laws, could be directed to support Ukraine and its recovery and reconstruction in compliance with applicable laws.

We will deepen our joint work to undermine Russia’s ability to wage its war, and maintain and expand its defense industrial base and capacity. Those who help Russia acquire items or equipment for its defense industrial base are supporting actions which undermine the territorial integrity, sovereignty, and independence of Ukraine. This includes companies supplying certain critical raw materials and high-priority items to Russia, as well as the financial institutions and other entities facilitating such We will target third-country actors who materially support Russia’s war. We will continue to vigorously and jointly enforce our sanctions and export control measures to disrupt circumvention and backfill. Our joint implementation of the G7+ price cap for seaborne Russian-origin crude oil and petroleum products supports energy market stability while diminishing Russia’s ability to finance its illegal war. We intend to act, consistent with our respective legal authorities, where we have evidence indicating violations or deceptive practices related to the price cap policy.

We reaffirm our support for the Republic of Moldova’s territorial integrity and The European Council decided in June to grant the status of candidate country to the Republic of Moldova. We will continue to support Moldova in addressing the challenges it faces as a consequence of the Russian aggression against Ukraine and in reform efforts on its European path.
We remain fully committed to supporting Georgia’s territorial integrity and sovereignty, and its European perspective. We reaffirm our shared commitment to stability in the Western Balkans and our support to the EU perspective of the region. All partners should continue making the reforms required to progress on their European path.  We note the need for Kosovo0F* and Serbia to urgently de-escalate tensions and to swiftly and unconditionally implement the agreement on the path to normalization of their relations and return to the EU-facilitated Dialogue. We remain committed to advancing a lasting peace between Armenia and Azerbaijan based on mutual recognition of sovereignty, inviolability of borders and territorial integrity. We urge Azerbaijan to ensure the rights and security of those who remain in Nagorno-Karabakh as well as for those who wish to return to their homes. We also call for all parties to adhere to the principle of non- use of force and threat of use of force.

Africa 

The United States and the European Union share a common interest in a thriving, peaceful, democratic, and resilient Africa, and welcome the accession of the African Union as a permanent member of the G20. We will work together to continue to enhance synergies in our cooperation with all our African We are committed to promoting the security, stability and prosperity of North Africa. We reaffirm our commitment to tackle common security challenges in the Sahel, including the fight against terrorism, in cooperation with ECOWAS.

Partnerships in the Indo-Pacific 

We reiterate our shared commitment to enhancing coordination and cooperation in support of a free and open Indo-Pacific with the aim of contributing to the stability, security, prosperity and sustainable development of the region, based on the promotion of democracy, rule of law, human rights and international Consistent with our respective Indo-Pacific strategies, we will seek opportunities to enhance practical cooperation in the Indo-Pacific, including through the biannual U.S.-EU Indo-Pacific Consultations. This includes expanding maritime domain awareness, encouraging cooperation on connectivity, responding to foreign information manipulation and interference, increasing coordination on cyber cooperation, and encouraging ongoing efforts to uphold fundamental freedoms and human rights. We reaffirm our unwavering support for ASEAN centrality and unity and our commitment to promoting cooperation in line with the ASEAN Outlook on the Indo-Pacific. We also reaffirm our partnership with Pacific Island countries and reiterate the importance of supporting their priorities and needs in accordance with the Pacific Islands Forum’s 2050 Strategy for the Blue Pacific Continent.

We reiterate our support for international law, in particular as reflected in the United Nations Convention on the Law of the Sea (UNCLOS), and for the peaceful settlement of disputes in accordance with international law, including under UNCLOS dispute settlement mechanism.

* This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence.
China 

The United States and European Union recall our discussions in other fora, including the G7, on the principles that underpin our relations with China. We stand prepared to build constructive and stable relations with China, recognizing the importance of engaging candidly with and expressing our concerns directly to China. It is necessary to cooperate with China, given its role in the international community and the size of its economy, on global challenges as well as areas of common interest. We call on China to engage with us, including in international fora, on areas such as the climate and biodiversity crisis, addressing vulnerable countries’ debt sustainability and financing needs, global health and pandemic preparedness, and macroeconomic stability.

With a view to enabling sustainable economic relations with China, we will push for a level playing field for our firms and workers. We are not decoupling or turning inwards. At the same time, we recognize that economic resilience requires de-risking and diversifying. In this context, we will invest in our own economic vibrancy and reduce critical dependencies and vulnerabilities, including in our supply chains. We also recognize the necessity of protecting certain advanced technologies that could be used to threaten global peace and security, without unduly limiting trade and We will foster resilience to economic coercion. We will address challenges posed by non-market policies and practices.

We remain seriously concerned about the situation in the East and South China Seas and strongly oppose any unilateral attempts to change the status quo by force or coercion. We underscore the importance of peace and stability across the Taiwan Strait, and encourage the peaceful resolution of cross-Strait There is no change in the one China policy of the United States or of the European Union.

We will keep voicing our concerns about the human rights and forced labor in China, including in Tibet and Xinjiang. With respect to Hong Kong, we call on China to honor its previous commitments with respect to Hong Kong under the Sino-Joint Declaration and the Basic Law.

We call on China to press Russia to stop its war of aggression, and immediately, completely and unconditionally withdraw its troops from Ukraine. We encourage China to support a comprehensive, just and lasting peace based on territorial integrity and the principles and purposes of the UN Charter, including through its direct dialogue with Ukraine.

Strengthening Cooperation on Security and Defence 

We will further strengthen and deepen EU-U.S. cooperation and engagement on security and defence. This could include enhancing practical cooperation in operational theatres of mutual interest. NATO remains the foundation of collective defence for its Allies and essential for Euro Atlantic security. We recognise the value of a stronger and more capable European defence that contributes positively to global and transatlantic security and is complementary to, and interoperable with We welcome the signature of the Administrative Arrangement between the United States Department of Defense and the European Defence Agency.

Partnering with Emerging Economies and Developing Countries 

The United States and the European Union are committed to accelerating progress toward the Sustainable Development Goals and to mobilizing additional financing for development. To this end, we are committed to advancing reforms for better, bigger, and more effective multilateral development banks to address global challenges and countries’ core development needs. This includes the implementation of critical financial reforms and a review of the climate finance architecture to make it more effective and efficient. We commit to raising the level of ambition to deliver more headroom and concessional finance to boost the World Bank’s capacity to support low- and middle-income countries addressing global challenges, with a clear framework for the allocation of scarce concessional resources, and to provide strong support for the poorest The United States and the European Union will step up efforts to deliver substantial contributions to this end.

Given the massive scale of need, greater private capital mobilization must play a significant role in meeting our objectives. We will continue to champion efforts to unlock private capital and will work with G7 partners through respective actions, to scale the Partnership for Global Infrastructure and Investment, including the European Union’s Global Gateway strategy, and mobilize $600 billion in quality infrastructure investments in low- and middle-income countries by Building on the discussions on U.S.-EU collaboration on the Trans-African Corridor and the India-Middle East-Europe Corridor, we are working towards identifying additional regional economic corridors to cooperate on to unlock inclusive and sustainable economic growth.

The United States and the European Union will also continue their efforts to promote digital inclusion and trustworthy information and communication technology and services supply chains around the world and pursue cooperation to develop a common vision and industry roadmap on research and development for 6G wireless communication systems.

B.  STRENGTHENED U.S.-EU ECONOMIC COOPERATION 

The U.S.-EU Trade and Technology Council (TTC) is the key forum for our cooperation on trade and technology matters. We commend the progress made and encourage advancing joint work in the run up to the upcoming TTC ministerial meeting later in 2023.

The United States and the European Union are committed to strengthening the transatlantic marketplace to support decent jobs and economic opportunities with an emphasis on mutually beneficial resilience and sustainability of our supply chains. We will advance the implementation of the Transatlantic Initiative on Sustainable Trade focusing on facilitating mutually beneficial trade across the Atlantic of products and technologies that underpin the transition to a climate- neutral economy.

Building the Sustainable and Resilient Economies of the Future 

The United States and the European Union are deepening our collaboration to address the urgent and interdependent crises of climate change, biodiversity loss and pollution, and urge ambitious action by all other major players. We will work expeditiously to implement the Paris Agreement, halt and reverse the loss of biodiversity globally and protect the ocean. We will intensify our outreach to third countries, notably in view of the 28th UN Climate Change Conference of the Parties (COP28), making every effort to keep a 1.5 degree Celsius limit on global temperature warming within reach. We are committed to working together and with others for COP28 to reach bold commitments to dramatically increase global renewable energy capacity and energy efficiency while supporting a global shift away from unabated fossil fuels, including an end to new unabated coal fired power plants. We will continue to lead efforts to cut methane to support achieving the Global Methane Pledge and look forward to a robust Methane Finance Sprint announcement at COP28.

Together, we will work to build climate neutral, circular, resource efficient and resilient economies, to promote internationally recognized labor rights, and to improve the resilience and sustainability of critical supply We will continue our work to advance the energy transition to climate neutrality and bolster energy security through the Joint Energy Security Task Force and U.S.-EU Energy Council.

We are making bold public investments in our respective economies, and will continue to also expand research collaboration, to ignite a clean industrial revolution and, with it, good jobs, and make our industries more sustainable and We will continue ongoing cooperation toward this end, and work openly and transparently against zero-sum competition to maximize clean energy deployment, including through our Clean Energy Incentives Dialogue.

We have made progress toward a targeted critical minerals  agreement for the purpose  of expanding access to sustainable, secure, and diversified high-standard critical mineral and battery supply chains and enabling those minerals extracted or processed in the European Union to count toward requirements for clean vehicles in the Section 30D clean vehicle tax credit of the Inflation Reduction We look forward to continuing to make progress and consulting with our respective stakeholders on these negotiations in the coming weeks.

Expanding Technology Cooperation and Exchanges 

The United States and the European Union are stepping up our joint efforts to promote an open, free, global, interoperable, reliable, secure, innovative, and competitive digital ecosystem. We are cooperating to manage the risks and harness the benefits of artificial intelligence (AI), working alongside our partners in the G7, OECD, and other multilateral fora. We affirm our continued work through the TTC Joint Roadmap on Trustworthy AI and Risk Management to further guide the development of tools, methodologies, and approaches to AI risk management and trustworthy AI. We confirm our joint intention to endorse a code of conduct for organizations developing advanced AI systems as part of the G7 Hiroshima process in the near We confirm our commitment to use AI for Public Good, particularly in the areas of agriculture, extreme weather prediction, emergency management and response, electric grid optimization, and health and medical research. As new and more advanced AI systems emerge, we plan to build on work done to promote responsible AI and work with industry, civil society, academia, and other stakeholders to enable trustworthy development and uptake of those technologies, and to advance our shared vision of responsible innovation in line with our shared democratic values. We recognize the importance of expanding research collaboration between the European Union and the United States for critical and emerging technologies such as AI, quantum, renewable energy, and other key areas, including by enabling transatlantic research funding activities that allow for both U.S. and EU researcher leadership while considering reciprocity in access to respective U.S. and EU research programmes and ensuring symmetry in managing intellectual property. We commit to working together to finalize an agreement on quantum-related items for the upcoming TTC meetings.

We aim to build a more secure cyberspace together. We endeavor to cooperate to promote high cybersecurity standards to protect consumers and business and decrease vulnerability to cyberattacks. To that end, we commit to work together on achieving mutual recognition for our government-backed cybersecurity labeling programs and regulations for Internet-of-things devices aiming at a Joint CyberSafe Products Action We will work for consumers in Europe and the United States to have an easy and reliable way to assess whether devices they bring into their homes, offices, and schools are secure.

Promoting Rules-Based Trade and Countering Unfair Competition

The United States and the European Union have a shared interest in reforming the WTO so that Members can better achieve the WTO’s foundational objectives and address modern-day imperatives. We will work towards substantial WTO reform by MC13 in 2024 including by conducting discussions with the view to having a fully and well-functioning dispute settlement system accessible to all WTO Members by 2024.

On 31 October 2021, we announced that we would negotiate within two years an arrangement—known as the Global Arrangement on Sustainable Steel and Aluminum (Global Arrangement)—to address non-market excess capacity and emissions intensity of the steel and aluminum industries, including to foster undistorted transatlantic trade. Throughout these two years, we have made substantial progress to identify the sources of non-market excess capacity. We have also achieved a better understanding of the tools to address the emissions intensity of the steel and aluminum We look forward to continuing to make progress on these important objectives in the next two months.

Strengthening Economic Resilience and Economic Security

The United States and the European Union are continuing to cooperate to enhance the resilience of our economies and advance our economic security interests, underpinned by a rules- based system, while preserving an open economy and a global level playing We will de-risk and diversify where we assess there are risks through proportionate, precise and targeted measures to address economic security challenges. We will continue working together to reduce excessive dependencies in critical supply chains, in close cooperation with partner countries. We share concerns about the challenges posed by, among other issues, economic coercion, the weaponization of economic dependencies, and non-market policies and practices. We will continue this work through inter alia the TTC, and with the G7 and other partners to diversify our supply chains and increase our collective preparedness, assessment, deterrence, and response to economic coercion.

We have a shared interest in protecting those advanced technologies that could be used to undermine global peace and security, and are developing our respective economic security toolkits to ensure our companies’ capital, expertise, and innovations will not be used to do Recognizing that outbound investment measures are necessary to complement its existing economic security toolkit, the President of the United States has issued an Executive Order to address risks from outbound investment and is consulting stakeholders on the U.S. rules. The European Union and its Member States are similarly exploring, based on a risk assessment, whether outbound investment measures could complement its existing toolkit. Export control regimes are central to maintain international security and stability, and necessitate cooperation between actors— including in multilateral fora—to ensure our dual-use technology protection ecosystem is continuously improved upon and cannot be exploited. We will cooperate and share lessons as we work to maximize the effectiveness of our economic security toolkit to achieve our shared interest.
Foreign information manipulation and interference is a borderless threat that poses a risk to democratic values, processes, and stability. We will expand collaboration based on common principles, such as dedicated strategies, internal organizational structures, capacity, civil society and multilateral engagement. This cooperation should aim to support like-minded partners in countering foreign information manipulation and interference, including via U.S. and EU coordinated activities, while safeguarding freedom of expression together with partner countries.

Expanding People-to-People Contacts

To preserve the strength and longevity of our transatlantic relationship, the United States and the European Union also endeavour to increase vital people-to-people exchanges. We will work to achieve visa-free travel between all EU Member States and the United States. Together, the United States and the European Union intend to provide additional resources to increase the number of transatlantic academic exchanges. The European Union will increase its funding to the Erasmus+ programme, and will double EU support to the Fulbright-Schuman programme, and across all Fulbright Commissions in EU Member States. The United States plans to increase its funding to all Fulbright Commissions in EU Member States, including the Fulbright-Schuman programme. This collective support will significantly increase the number of transatlantic academic exchanges between our citizens over the next five years.

 
Compliments of the European CommissionThe post EU-US Summit Joint Statement first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Council has adopted a regulation to help the EU and its member states protect themselves from economic coercion by third countries.
The new legislation, known as the Anti-Coercion Instrument (ACI), is meant to serve as a deterrent for third countries targeting the EU or its member states. The aim is to use this legislation to de-escalate and induce the discontinuation of coercive measures in trade and investment through dialogue.
When this is not possible, and as a last resort, the EU will be able to adopt countermeasures such as the imposition of trade restrictions, in the form of, for example, increased customs duties, import or export licences, restrictions on trade in services or access to foreign direct investment or public procurement.
Definition of economic coercion
Economic coercion is defined as a situation where a third country attempts to pressure the EU or a Member State into making a particular choice by applying or threatening to apply, measures affecting trade or investment against the EU or a member state.
Activation of the mechanism
The Council will have significant involvement in the decision-making process, determining the existence of economic coercion.
The European Commission will be given implementing powers in decisions on the EU’s response measures, while ensuring increased involvement of member states in these decisions.
The instrument can be triggered by a wide range of coercive economic practices where a third country applies or threatens to apply a measure affecting trade or investment in order to prevent or obtain the cessation, modification or adoption of a particular act by the Union or a member state. Input from stakeholders will be taken into account when considering activation of the instrument, and businesses are encouraged to come forward with relevant information.
The ACI and any actions which can be taken under the instrument are consistent with the EU’s international obligations and fully grounded in international law.
Next steps
The signing of the regulation is expected to take place on 22 November 2023 and will enter into force 20 days after its publication in the Official Journal of the EU.
Background
The European Commission proposed this legislation on 8 December 2021 at the request of the Council and the European Parliament. The European Parliament’s negotiating mandate was adopted on 19 October 2022, while the Council’s negotiating position was agreed on 16 November 2022. An interinstitutional political agreement was reached on 28 March 2023. On 3 October, the European Parliament green-lighted the regulation. Today’s decision at the Council was adopted as a point without discussion at a meeting of Agriculture and Fisheries EU Ministers.
 
Compliments of the European Council.The post EU Council Adopts a Trade Related Regulation to Protect the EU From Third-country Economic Coercion first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.