Hello from Brussels, where everyone’s supposed to be contemplating a reset of relations with the US and an imminent deal or not in Brexit and what have you. In truth, it’s hard for everyone to drag their attention away from the lockdown-busting Brussels “sex party”, as Belgian media has called it, which has done for the career of a Hungarian MEP who’s a close ally of Hungary’s Viktor Orban. You just don’t get this kind of thing in the trade world, or at least we’ve never been invited.
Today’s main piece is on how the EU member states have been wrestling with the question of how far to let Huawei into their 5G systems, and the unobtrusively constructive role the European Commission has been playing. Tall Tales is on the further disintegration of the narrative about mass reshoring and the pandemic, while vaccine news prompting a wave of market exuberance is the subject of our chart of the day.
The commission and 5G: a toolbox, not an arsenal
Since the tech wars between the US and China spread into a global conflict, Europe has emerged as one of the major combat theatres. In particular, the decision on whether to use equipment from China’s tech giant Huawei to build 5G systems has turned into a hand-to-hand battle, EU member state by member state.
So far there are highly varied results, often reflecting the underlying political and bureaucratic culture in each country. A bunch of Atlanticist central and eastern European countries has instinctively fallen in with the US’s demands to exclude Huawei. The UK, with its pretensions to being a global tech player, originally wanted a free-for-all until Washington peremptorily yanked its Anglospheric chain and it did an abrupt about-turn.
France has executed a smoother and subtler strategy, guiding network operators away from high-risk vendors such as Huawei by informally indicating that licences to use their kit will not be renewed. Italy has created a political-bureaucratic tangle, requiring operators repeatedly to gain permission before installing equipment. Germany, looking for consensus but with its China-oriented exporters lobbying hard against anything that might annoy Beijing, is flailing about trying to find a solution while telecom operators create facts on the ground by buying the kit they want. Meanwhile, Sweden’s blunt decision explicitly to exclude Huawei and fellow Chinese company ZTE by name from spectrum auctions resulted in legal action: Huawei has persuaded Sweden’s administrative court to suspend parts of the auction for the moment.
So, no coherence in member states’ reactions? That’s not quite fair. The European Commission has been playing an unusually subtle guiding role to put these decisions in a general systematic framework.
We say unusually subtle because the commission has had an unfortunate habit when it comes to issues with pan-EU significance but where decisions rest at member-state level. The screening of foreign direct investment is one; ensuring reciprocal openness to government procurement is another. Sometimes the commission sees a promising fracas ahead on the battlefield, sounds a trumpet blast and starts a cavalry charge, only to find that the member states aren’t necessarily joining in and that it itself has neither lance nor sabre, sometimes not even a horse.
On the question of 5G, it has tried a more sophisticated tactic. Instead of trying to impose a policy on member states, as it has been accused of doing with FDI screening and procurement, the commission in January produced a detailed cyber security “toolbox” of analytical and procedural steps to making 5G systems secure. The toolbox urges, for example, member states to distinguish between critical, high-risk and moderate-risk parts of the network when deciding what equipment to allow in. The publication was followed by an assessment of member states’ progress a few months later.
The toolbox is not law, but it does increase transparency and comparability, and may already be setting informal governance norms. When Sweden’s decision on Huawei and ZTE was criticised by the equipment manufacturer Ericsson (on the face of it an odd thing to do for a rival, but the Swedish company fears retribution in China, where it has a significant presence), Borje Ekholm, Ericsson’s chief executive, explicitly referenced the regulator’s failure to follow toolbox protocol.
Noah Barkin of the German Marshall Fund think-tank in Berlin says: “As we’ve seen in Sweden and other countries, Huawei is ready to push back against legislation banning it from 5G networks. That underlines the importance of creating a sound legal basis for these decisions. The 5G toolbox provides guidance on this, but each country will adopt its own approach.”
Getting the technological and legal details right is important. More litigation may lie ahead. Edwin Vermulst, a venerable Brussels lawyer who has represented Huawei, argued in a recent commentary with a colleague that Sweden had made itself vulnerable to litigation under EU and WTO law with its clumsy use of public and national security exemptions from rules on free trade.
The toolkit will not magically fix this problem, but it can inform the solution. Member states have varied greatly not just in the substance of their decisions on 5G security but in the quality of reasoning and execution. However, everyone should definitely acknowledge a solid performance from the commission, confining itself to doing what it can and doing it well.
The markets have become too hot to handle. So intense is the frenzied stock-buying that even many of Wall Street’s biggest brokerages and wealth managers are struggling to keep up. The emergence of several credible, effective coronavirus vaccines has triggered a burst of optimism that the global economy is poised for a powerful rebound in 2021, as the pandemic recedes but the extraordinarily aggressive stimulus measures continue to send money sloshing around the financial system.
Tall Tales of Trade
We may, once or twice, have expressed scepticism at the widespread belief that the pandemic will cause a lot of manufacturing to be reshored to rich economies. Some continued diversification of supply chains out of China to other emerging markets in Asia, yes. A lot of industrial production coming back to high-cost countries, putting all a company’s eggs in one expensive basket? Unlikely.
So far it looks like we’re right. This week the New York Times reports that manufacturing companies operating in France, whose government is a world-class producer and exporter of eloquent rhetoric about reshoring if nothing else, are continuing to cut French factory jobs. And guess what? Often they’re creating them instead in lower-cost economies abroad — including, in one case, the UK. We know, right? Astonishing. Bolt from the blue.
One detail caught our eye: back in April, when panic about the pandemic and deglobalisation was close to its peak, a survey by EY found that 83 per cent of multinationals were thinking of reshoring or nearshoring. The proportion in October? Thirty-seven per cent. The tall tale of mass reshoring looks less convincing the more that time goes on, and panic about severe dislocations to global trade subsides.
Among the legacies of President Donald Trump’s administration is an abiding concern among America’s allies that it will drag the west into needless conflict with China, writes Philip Stephens. The president’s belligerence has been succour for those who argue that, where the US sees a geopolitical rival, Europeans should stay fixed on the economic opportunities. Rather than take sides, the EU should play the role of mediator.
The global financial system is resilient enough to withstand the impact of the coronavirus crisis but policymakers must act quickly to deliver a return to economic growth and avoid widespread financial distress, Kristalina Georgieva, managing director of the IMF, has told the Financial Times. “We are in a resilient place, but we cannot take financial stability for granted,” she told Martin Wolf, chief economics commentator, during a Financial Times online global banking summit.
Congress has passed legislation that would force Chinese companies to delist from American exchanges unless they comply with US accounting rules. The House of Representatives passed the bill, which could affect companies from China Telecom to Alibaba, following Senate passage in May. Trump is expected to sign the legislation, which has benefited from a bipartisan consensus over taking a tougher line against China.
The best trade stories from Nikkei Asia
Having opted out of the 15-country RCEP trade deal, India has now set its sights on Africa, where it believes it can leverage geographic strengths to boost exports.
Japan is considering banning new sales of conventional gasoline-powered cars by the mid-2030s to encourage hybrid and electric vehicles, and become a zero-emissions society by 2050.
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