February 26. 2024. 6:43

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French minister: International trade faces ‘paradigm shift’, EU industrial plan key

Trading with international partners at “whatever costs” no longer makes sense, French Trade Minister Olivier Becht said, urging that the EU must react to the US Inflation Reduction Act with an industrial plan.

Becht spoke of a true “paradigm shift” in the world of international trade at a press conference on Tuesday (7 February), emphasising the need to trade in a way where “the environment, health, workers and consumers are protected”.

The minister presented France’s 2022 balance of trade numbers, which reached a record-high deficit, down €78 billion from last year, to -€164 billion, according to data from the French Central Bank and the economy ministry. Some 86% of this downfall can be attributed to exploding energy costs after Russia’s invasion of Ukraine, which have almost trebled from €45 billion to €115 billion compared to 2021.

The euro’s 11% depreciation against the dollar for the whole of 2022 also made imports more expensive, which has proven particularly harmful to imported energy products, including liquified natural gas, crude oil and other petroleum products. Plus, global supply chains have not fully recovered from the COVID-19 pandemic era.

While goods trade is at an all-time low, services are on the up considerably, reaching €50 billion due to increased tourism flows, a booming transport industry, and a growing financial services trade boosted by Brexit as financial institutions move out of the City and into continental Europe, including Paris.

Cash has also been flowing back into the country from projects in countries outside of the EU, reaching €31 billion. This notably includes infrastructure projects in Africa, the benefits of which go into French coffers.

French balance of payments, 2018-2022 [French Central Bank, ministry of the Economy]

Against unfair trade practice, “the EU must react”

“There is a structural deficit, which has been there ever since France’s deindustrialisation in the 1990s, and we’re paying a heavy price today,” Becht told journalists at the press conference.

“We deindustrialised the country over a 20-year window, we’ll need a decade to reverse course,” he added. This means protecting EU interests against third-country subsidies and tax break packages, the latest – and widest-reaching – of which is the US Inflation Reduction Act (IRA), introduced by the Biden administration in November.

Reducing dependencies on imports is crucial, Becht said in an answer to a question by EURACTIV, and the European Commission’s new Green Deal Industrial Plan, “largely supported and in fact thought of by the French”, goes in the right direction.

Under the plan, state aid rules are due to be temporarily further relaxed, and the principle of ‘matching subsidies’ has been enshrined, where a member state can match the amount of subsidies a third country is willing to offer an EU firm, provided they keep their production plants in the EU.

Becht contends that China and the US positioned themselves as key market actors for strategic goods, including critical raw materials, necessary to ensure an impactful and fast-paced ecological transition through heavy subsidy schemes, even if this means breaching World Trade Organisation trade rules.

If these competitors are not going to change their ways, “then the EU must react”, Becht said, “and we will counterbalance negative effects with higher customs duties […] and reinforce our commercial defence instruments”.

EU’s Vestager warns of fragmentation risks, but expands state aid

On Wednesday (1 February), Margrethe Vestager presented a new framework for state aid that will allow member states to subsidise more companies for longer, while also warning that such subsidies were a threat to the integrity of the single market.

Rearm French industry

France did not wait for the US IRA to put reindustrialisation at the forefront of the minister’s priorities, he said.

A new €54 billion investment plan dubbed “France 2030” was introduced in November last year to reindustrialise the country through innovation and reskilling programmes. The development of Small Modular Reactors (SMRs) in the nuclear industry, or supporting the growth of low-carbon hydrogen, is at the heart of France 2030’s objectives.

The number of exporting SMEs, which today account for 98% of all companies in France but only 13% of French exports, must also be increased, according to the minister. The trend has been a positive one compared to last year, and the number of exporting SMEs increased from 116,000 to almost 145,000.

LEAK: Commission details subsidy-matching scheme for green industry

Just days after the Commission presented its new Green Deal Industrial Plan to counter foreign subsidies for clean industry, a leaked communication details the full extent of the temporary bending of state aid rules across the bloc, including a rule to prevent a German go-alone.