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Welcome to Trade Secrets. In last week’s column, I wrote about the recent conference in Paris on financing the green transition in developing countries, which featured some interesting interventions from China. Today, we’ll be looking at the first cases under new EU laws aimed at cleaning up supply chains, as well as the potential legal battle over plans to tax carbon-heavy imports. We’ll also explore China’s rise in the solar power industry and its implications for electric vehicles.
If you have any questions or comments, feel free to email me at [email protected].
Diligence long overdue
The German law on due diligence in supply chains, known as the Lieferkettensorgfaltspflichtengesetz (LkSG), has recently come into force. The law aims to hold multinationals accountable for environmental and human rights violations in their global activities. Complaints have been filed against Volkswagen, BMW, and Mercedes-Benz for their alleged use of forced Uyghur labor in their supply chains.
Although the law does not create new civil liabilities for breaches of labor and environmental standards, it does provide a platform for litigants to bring cases. The European Center for Constitutional and Human Rights (ECCHR) has filed a complaint against the carmakers, and Volkswagen has announced an independent audit of its Xinjiang operations.
The supply chain law marks a cultural shift for the German government, which is no longer automatically defending its multinationals abroad. This comes at a crucial time for the European and Chinese car industries as they both undergo a major transformation towards electric vehicles. While the EU is trying to catch up with China in this sector, Volkswagen is struggling to establish itself in EVs as it did in internal combustion engine cars. The scrutiny faced by VW and other European automakers raises questions about Europe’s commitment to a clean conscience versus a domestic car industry.
Wham-CBAM-thank-you-ma’am
The carbon border adjustment mechanism (CBAM) is another significant piece of European legislation. The CBAM aims to prevent carbon leakage by imposing tariffs on goods from countries with weaker carbon pricing than the EU. It has been designed to comply with WTO law, but its fate could be subject to legal challenges. The EU has faced opposition from countries like India and may face a WTO legal challenge.
These disputes come at a difficult time as member governments try to revive the WTO’s dispute settlement system, which has been paralyzed due to the US’s refusal to appoint new judges. The EU has been a strong advocate for the dispute settlement system and has created a makeshift replacement Appellate Body. Losing a case on the CBAM could force Brussels to reconsider its plans, while the US may use it as an opportunity to criticize the EU’s commitment to both green and multilateral policies.
Charted waters
China’s dominance in the global solar power industry is a notable example of its potential future dominance in the electric vehicle market. China initially competed on market share a decade ago, but now its position is assured as both the largest producer and consumer of solar equipment. Similarly, Chinese companies are likely to dominate the world EV sector due to their dominance in the rapidly growing domestic market. This raises concerns about EV imports from China and the involvement of Chinese EV companies in Europe.
Trade links
During the recent Paris financing conference, China expressed willingness to participate in an agreement to extend loan repayments for Zambia. This gesture could be seen as a step towards a sustainable path for the country. However, developing countries’ disillusionment with the IMF and World Bank was evident as the Kenyan president called for a new “green bank” to finance the climate transition outside of traditional institutions.
Concerns about the IMF’s approach to restructuring sovereign debt have also been raised. Additionally, market concentration in global food trading is a significant issue that should not be overlooked, as it challenges the assumption of perfectly competitive commodity markets. On a positive note, the new Chinese premier has emphasized that China does not see the EU’s “de-risking” strategy as a threat.
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