Trends in International Trade: A Conversation With Valdis Dombrovskis

The European Commission’s Executive Vice President and Commissioner for Trade, Valdis Dombrovskis, discusses the trends and shocks affecting international trade, the value-added of multilateralism, and how economic security is enhanced by trade openness between the European Union and United States.

The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

SAPIRO: Well, good morning and welcome to the Council. I’m Miram Sapiro, nonresident senior advisor at CSIS, the Center for Strategic and International Studies.

And we are truly honored to have you with us today. Valdis Dombrovskis is the executive vice president of the Commission and also the Trade Commission. And, of course, you have his official bio. We’re so grateful that you were able to take time out of your busy schedule this week to spend a little bit of time with us this morning. We have, obviously, a lot of members in the room. In addition, we have over a hundred members who are joining us virtually by Zoom. We’ll talk for about thirty minutes, and then we’ll open it up to questions. And just reminder to everyone that this meeting is on the record.

So let’s jump right in, especially, as I understand, that talking trade policy for you will actually be a break today, given all of your meetings this week at the World Bank and at the IMF, focused on Ukraine, possibly also in the Middle East, on climate financing, and a whole range of issues. So let’s begin with a broad question about trade. What is your biggest concern these days about the future of international trade?

DOMBROVSKIS: Well, good morning. And, first of all, thank you for this invitation on the Council on Foreign Relations for this fireside chat. Well, on a trade. Well, first of all, what we have seen in recent years is already in a relatively slow growth in global trade, with the growth rate substantially behind global economic growth. And we see some first signs of this trade fragmentation with trade actually concentrating more along geopolitical lines. And we see it even in an even more pronounced way in investment laws. So the concern here is on risks of global economic fragmentation, rise of protectionism, weaponization of trade. And, as there are studies and estimates done by IMF, that if this global economic fragmentation is to take place, and trade is to concentrate along the geopolitical blocs, it can have a substantial negative effect on global economy, up to 7 percent.

This is like equivalent of taking Germany and France’s combined GDP out of the world economy. So the costs are—potential costs are very substantial. Therefore, it’s important that we continue to engage and invest in rules-based multilateral global trading system. That’s why we are, from EU side, committed to the WTO, to WTO reform. We see the relevance of it for the world trading system. In fact, it was the WTO most favored nation principles that is behind much of the resilience also of global trade, despite geopolitical conflict and supply chain disruptions. And obviously, there is now a lot of work going on in different countries on different bilateral or regional trade agreements, but still 75 percent of global trade takes place under WTO rules. And in the European Union, we have the world’s most comprehensive network of free trade agreements. And still more than half of our trade is under WTO rules. So if you ask the concern? The concern is preservation of rules-based multilateral trading system.

SAPIRO: And, speaking of the U.S. and EU, where do you think that both economies could adopt stronger policies that might make a difference in terms of these concerns?

DOMBROVSKIS: Well, obviously if EU and U.S. are joining forces, we can make the difference. Together we are 42 percent of the world GDP, while we have world’s largest trade and investment relations, and we are also each other’s largest trading partner and largest investor. So there’s lots at stake for EU and U.S. economically. And we can move the needle globally if we are working together. So this brings me actually to the question of EU-U.S. Trade and Technology Council, which has emerged as a main forum for those discussions and coordination of our efforts in both of those areas, trade and technology.

On the trade side, our flagship project is building a green transatlantic marketplace, because we believe if we work together on greening economies, reduction of emissions, we can achieve more in a more cost-efficient way. It means also cooperation on settings or standards, especially on those new and emerging technologies. Because, once again, if we are agreeing on a standard, it has a good chance of becoming a world standard. It means work on conformity assessment, on green public procurement, on a number of other areas. And in a current geopolitical landscape, obviously it means also work in coordination in the area of economic security, because it’s clear that economic security is much more prominently in our agenda on both sides of the Atlantic. And, once again, we can achieve more if we work together and coordinate our efforts.

SAPIRO: Let’s dive for a moment a little bit deeper into the U.S.-EU relationship. As you said, together we’re over 40 percent of global GDP. Our trade supports about 16 million jobs on both sides of the Atlantic. It’s the largest bilateral trading partnership in the world. Can you—can you share with us your own thoughts on what can the U.S. and the EU try to accomplish in a very concrete sense during the rest of 2024?

DOMBROVSKIS: Well, during the rest of 2024, this is, as we know, election year on both sides of the Atlantic. We have European Parliament elections in June. And then the work will start on setting up a new, well, European Parliament, obviously, but also the new European Commission. There are elections in U.S. coming. From that point of view, there’s not much time left in current political cycle. So concretely, we believe that if there is a political way, substance-wise, we definitely can still conclude the critical minerals agreement. This is still something which is within the reach if there is a willingness to move, because, substance-wise, I will say we are—we are almost there. So that’s definitely something which should be doable.

Also, we need to set the scene already for our next political cycle. And from that point of view, it’s important that we continue this engagement with the Trade and Technology Council. Also with the new administrations on both sides of the Atlantic. And we had our last Trade and Technology Council meeting last month in Belgium, in Leuven. And, in a sense, that was a political agreement. And we also agreed that the working groups in the TTC keep working also in this period, so that this cooperation continues on the technical level so that we can pick it up once we are in the next political cycle.

SAPIRO: Obviously talking and cooperating is critical, but also both sides are trying to think of concrete accomplishments. So it’s absolutely true, some of the players may change. Looking beyond this year then, to the next two to five years, be curious about where you see—where you would like to see the relationship going. And, in that regard, I’m especially interested in whether you see value in the idea of a U.S. trade agreement, a vehicle that could try to create even more job growth on both sides, and also create even stronger labor, and environmental protections, and enforcement, and sort of set a high bar that others may then want to emulate?

DOMBROVSKIS: Well, if you ask me, personally, I’m in favor. I believe that EU and U.S. are strategic partners. And there’s lots to gain if we work together, including in the area of trade. And if that may include also EU-U.S. free trade agreement, that certainly would be a boost for both economies. Second question, how realistic it is. And there, I would say, having seen experiences with TTIP, having seen how difficult it is to reach even relatively modest steps in the area of trade—even in the era of trade facilitation, leave alone trade liberalization, it’s, I would say, a very challenging goal.

So I would say it’s something as a strategic ambition to where we should at some stage arrive. But we also need to look what are the immediate deliverables. And that probably is something more targeted and sectoral, including agreements like critical minerals agreement, that they will need to come back in the next political cycle, also to pick up the work on global steel and aluminum arrangement, which we’re not able to finalize, and generally on this question of 232 tariffs, or tariff rate quotas now, many other topics. There are also many concrete, practical things which we can do to improve and facilitate our trade relations.

SAPIRO: We come back to a moment to the question of economic security, which you mentioned. I just want to underscore its importance because national security and economic security are so intertwined. And economic security, of course, depends for the U.S. and also for other countries on investing and building and expanding a secure middle class. So one of the challenges that we both face—both economies—is, of course, China. And I wanted to ask your thoughts on what kind of leverage you see the EU as having in its relationship with China, that it’s willing to use to try to achieve better outcomes?

DOMBROVSKIS: Yeah. Well, as regards EU-U.S. relations with China, including trade relation, well, certainly it’s a very important relationship. China is our second-largest trading partner. But it must be said that this relationship is very unbalanced. So last year we had 290 billion euros trade deficit with China. So, this is something which definitely needs to be addressed. It’s reflection of the fact that EU market is more open for Chinese goods and companies than Chinese market is for EU goods and companies. So, the first thing is to address this imbalance by addressing concrete market access barriers in China. And that is a focus of our engagement with our Chinese counterparts in the area of trade.

I would say the record on this is mixed. We are able to address somebody else making less progress than others. New issues are emerging, like for example the a question of data flows right now is quite important issue to deal with. And, also we are using our autonomous tools to level the playing field where necessary. Just to give some examples, as you know, we have launched recently anti-subsidy investigation on Chinese battery electrical vehicles. Even more recently, we launched subsidies probe in wind energy. All in all, around two-thirds of our trade defense measures are actually related to market distortions caused by China. So there is a lot of work to be done, in a sense, to level the playing field. And there we go broadly the same concerns as U.S.

And a second point is economic security. So on one hand, we need to be careful about strategic technologies, about strategic assets, infrastructure, in interest of our national security considerations. But also we cannot allow new strategic dependencies emerge. Like, for example, in—we are now both engaged in green and digital transformations of the economy. In 2022, we had to unwind the EU’s strategic dependency on Russian natural gas supplies, which we did. But now when we move to the green and digital economy, it’s important that we are not developing new strategic dependencies. And if we look on the supplies on critical minerals, there is on a number of occasions we are dependent, 80, 90, more than 90 percent on supplies from China.

So therefore, it’s very important that we work on diversification of those supplies. And we are looking all the ways how we can engage with reliable partners around the world on this diversification. And from that point of view, also the launch of Mineral Security Partnership Forum, which EU and U.S. will be cochairing, is important step in this regard, with the idea to bring together resource rich and consuming countries, and work towards a mutually beneficial partnerships where resource rich countries can develop not only extractive but also processing capacity to get more value added out of the resources they hold, we can ensure security of supply of those critical minerals which we need.

SAPIRO: Good. And I want to commend the work that you’ve been doing on investment screening, on strengthening export controls, in coordination with the U.S. and other partners as well, because that’s another key piece of economic security. I wanted to stay on China for a minute, because you yourself just said that the future of the EU-China relationship will depend on how China chooses to act in Ukraine. So what kind of grade would you give China at this point on that question?

DOMBROVSKIS: Well, certainly, there are concerns in this regard. Well, we see that China is, in a sense, sitting on the fence and looking how to use this situation to its benefit. But unfortunately, recently, we also see increasing signs of China actually supplying components, all kinds of equipment, to Russia. Not straight weapons, but many also dual use items. Which brings me to the question of our collective response to Russia’s aggression against Ukraine, because if you’re not showing necessary resolve in in stopping Russia’s aggression, putting sanctions on Russia, providing all necessary support to Ukraine—financial support, politically right now military support.

Currently, we are in some kind of a cliff-edge situation, because situation in Ukraine is very difficult. There is a lack of ammunition, there’s a lack of air defenses. Russia is using it, obviously, and the number of civilian casualties and destruction of civilian infrastructure is growing rapidly right now in Ukraine. So clearly, there is a need just to stay the course and show resolve vis-à-vis Russia. And in that context, we hope for positive decisions in U.S. Congress hopefully later this week on the financial support.

SAPIRO: I think we all do. (Laughs.)

DOMBROVSKIS: I was actually visiting—during this visit I held several meetings also on the Hill to discuss exactly this topic. So it’s—you know, with the congressmen and congresswomen to really impress the importance of staying the course and showing the leadership and the resolve in this regard. Because what we see is that other authoritarian regimes are watching and having ideas. And if the West is not firm in responding to Russia’s aggression to the Ukraine, we will see more assertive China. In a sense, more recently we’re already starting to see with those more open supplies, which are starting to go towards Russia.

We saw recent Iran’s attack against Israel, and generally conflict in the Middle East. So we saw also some time ago Venezuela holding a referendum to declare part of neighboring country’s territory as their own. So therefore, I think it’s very important that as a Western democratic world we stay together and defend rules-based world order, because that counterfactual of the world where might is right is going to be very, very dangerous and with very negative consequences.

SAPIRO: It’s not—it’s not a world that any of us want to live in. And I completely agree that China’s relationship with Iran is also one of increasing concern. China’s relationship with Russia, and counter to the interests of Ukraine and Europe and the U.S., isn’t improving. And so what more do you think the EU can do to drive this point home to China, that what it does in Ukraine, what it does with Russia, will have a bearing? What else can EU do to make that point crystal clear?

DOMBROVSKIS: Well, first of all, this is a point which we are very much emphasizing in all our bilateral meetings, bilateral relations. In September last year, myself, I was in China for high-level economic and trade dialogue with China, where I was also impressing this message on my counterparts. And it’s being done at every level. We are also imposing certain measures on Chinese companies which are actually active in sanction circumvention, through which dual-use items are reaching Russia. And then we are finding those items in battlefields in Russian military equipment.

So also showing that in an absence of cooperation there are also steps which can be taken against those companies. So in case of the EU, what we are imposing is a prohibition of all EU companies to make any business with Chinese companies which are involved in sanctions circumvention. On this, by the way, we’re not talking only China. We are talking also other countries and other companies where we see this sanctions circumvention taking place.

And in any case, as I said, we are getting more settled, defending also our economic interests and distortions which we are seeing to the level playing field. And once again, this is another area where cooperation and coordination with the U.S. is very important. We already do have it very well when we were establishing different export controls, like also in the context of Russia. And when we are now working together with U.S. against the sanctions circumvention, where they’re also a joint EU-U.S. missions going to the third countries concerned, and actually engaging in dialogue and convincing those countries to stop certain practices and be serious about prevention of sanctions circumvention.

SAPIRO: Good. And if you had a magic wand—I know we all wish—(laughs)—we had one, from time to time—and there was just one step that you could ask the United States to take to strengthen the Transatlantic Alliance, what would that be?

DOMBROVSKIS: Well, right now, I would say it’s strong and massive support to Ukraine, because in Europe we see this as existential fight. Russia is openly talking about invading other countries if it emerges victorious or successful in Ukraine. So by supporting Ukraine, we are now supporting also our own security and the global security architecture.

SAPIRO: Again, if you had a magic wand, but hopefully for the reasons you mentioned, we will see some positive action in terms of support for Ukraine from Congress this week. I want to go back for a moment to the multilateral trade dimension. In your view, do you think that trade multilateralism is already dead or dying a slow death? (Laughter.)

DOMBROVSKIS: Well, as I said at the beginning, if 75 percent of the world trade is taking place under multilateral WTO rules, you can hardly declare it dead. (Laughs.) It’s alive and going strong. But suddenly, there are risks. And I mentioned this risk of global economic fragmentation. That’s why it’s important that we are actually investing certain time, and energy, and effort at keeping the multilateral global trading system going. And that’s why we’re very engaged in a successful functioning of the WTO, on reform of the WTO, across all three of its core functions, negotiation, monitoring, and deliberation, and also dispute settlement.

And on this latest, we hope also on constructive U.S. engagement. We know the criticisms on the previous Appellate Body. So we are engaged in intensive discussions on what are the ways to reform the Appellate Body? What are the ways to reform the dispute settlement system? But it’s also clear that the multilateral rules can only be efficient if there is also dispute settlement and enforcement mechanisms attached to them.

SAPIRO: Right. We may have a large percent of trade functioning under WTO rules, but we also haven’t had many new agreements over the last several years. So, hence the question. And just to follow up WTO issues, you were diplomatic after the ministerial meeting in Dubai, but yet I sense disappointment on the part of the EU in the outcomes that were achieved. And so I’m curious, in terms of the important reform areas that you’ve just mentioned, which do you think is most vital for getting the WTO back on track? And what is the EU doing, again, in a concrete way, to try to achieve that result?

DOMBROVSKIS: Well, on onto WTO reform, as I mentioned, probably the most important now is to have functioning dispute settlement system, because that currently is the missing link in the WTO. There is agreement, which was reached also now at the Thirteenth Ministerial Conference in Abu Dhabi, to reach agreement on functioning of dispute settlement by the end of the year. Hopefully, we can stick—

SAPIRO: This year?

DOMBROVSKIS: This year, yeah. Hopefully, we can stick with this and actually deliver on this agreement, which was reached in MC13. OK, it was not news in itself, it was confirming what was decided earlier at MC12. But we already in mid—or, approaching the mid-2024. So it’s important area of focus. So that’s one. Then we are—we had created or participate in creation of some kind of fixes for dispute settlement in absence of functioning appellate bodies, this Multi-Party Interim Arrangement. But this indeed we see as an interim arrangement, say, to plug the hole while we don’t have a proper dispute settlement system, and a proper appeal instance in the WTO itself.

SAPIRO: Good. Well, we’ve got about eight months left to 2024, minus August when we know it’s difficult sometimes to find colleagues, in Europe—more so now in the U.S. as well. So we’re hopeful in those seven working months that we’ll be able to see some concrete achievements. Just one more question for you before we open it up. And that is, which is the harder job that you have had, prime minister of Latvia or EU trade commissioner? (Laughter.)

DOMBROVSKIS: Well, of course, very difficult jobs, difficult set of challenges. I would still say that the prime minister was harder job. Well, first, because it was during the global financial and economic crisis. And Latvia was a country—one of the countries actually worst hit by this crisis. So that was—context was extremely difficult. But also, I’m noting that if you, say, a person number one, like prime minister, everything is on you. Whereas if you are, say, in vice president or executive vice president, you have certain areas of responsibility. And still, it’s not like everything is focusing on you. There’s just, like, a lot of responsibility you have to deal with.

And that’s changing, and not in the direction I would like, in a sense. But still, when we are working at the European level, it’s more policy and less politics. It’s also positive, but unfortunately also at the EU level we are seeing more and more, let’s say, politics playing the role also in policy decision making. (Laughs.)

SAPIRO: So it sounds like prime minister is good training for being EU trade commissioner. Well, let me open it up now to questions from the room, and also from our Zoom audience. Let me just remind you that this is on the record. And we’ll start with a question here in Washington.

So yes. Just wait for the mic, please.

Q: OK. Mark Kennedy from the Wilson Center.

As it relates to the WTO, dead, dying, or on this path to even greater life, if it—if it withers in this strategic competition we’re in with China and other folks, who benefits more? I mean, it would seem to me that we have a strategic interest in the West in keeping the multilateral system alive, even more so than other competitors.

DOMBROVSKIS: Well on this I will say China has an enormous stake here. Because the remarkable growth of China over the last couple of decades coincided with its WTO membership, which helped opening up the world markets for China and sustain its export-led growth model. So it is actually in China’s best interest to preserve this multilateral trading system. But for this, China also needs to do certain work to address the distortions to the world economy and to the global level playing field, which it is creating. And also, I would say for many smaller and developing countries, multilateral rules-based system is the best option, because if you have to navigate this kind of power-based world, or a world where countries are just negotiating some kind of bilateral deals, if you are a smaller country, if you’re a less-developed country, you can actually—you have much less leverage. So it’s—so, as I say, a broad range of countries are benefiting from a multilateral system, starting with the EU and U.S., with China, but also with the small developing countries.

SAPIRO: Question. Did you have a question, Mike? Please.

Q: Thank you. Yeah, I feel—I feel like I’m slightly taking advantage of that. Welcome, Commissioner.

Lots of questions. Let me ask two provocative ones.

One is, you gave a very strong defense of the rules-based system, but we have a major economy that has really not been following the rules. You’ve talked about the distortions. Is it time to revisit the notion of MFN and the free riders who take advantage of MFN? Should it remain a core principle of the global trading system?

And secondly, there’s been a lot of convergence between the U.S. and the EU on China over the last few years—not total convergence, but in terms of assessing the nature of the challenge and what to do about it. It’s been particularly hard for Germany, given how dependent they are on the China market and how dependent their companies are there. If China were to invade Taiwan, would the EU join the U.S. in sanctions?

SAPIRO: A couple easy ones.

DOMBROVSKIS: OK. On this question of reforming the MFN regime, well, frankly, it’s not part of the discussions in WTO. So in a sense, there’s no open challenge to the functioning of MFN regime. And as I was saying, also at the beginning, it is actually the WTO MFN regime, which is helping with the resilience of global trade, despite all the geopolitical tensions. And there are ways to react in case of blatant violations. And recent example is withdrawal of MFN preferences from Russia. That’s what also the EU has done. And following this withdrawal of MFN preferences from Russia, we recently—as European Commission—also came with a proposal of imposing the WTO-bound tariffs on—which are very high tariffs, basically prohibitive tariffs, on Russian grain and a number of other grain products and foodstuffs.

While this was in the context of our discussions on, you know, effects on Ukrainian grain in an EU market, but then also exports of Russian grain has increased quite substantially last year. So at least we can remove that from the market. And the fact that we withdrew MFN preferences is allowing us to do so. Actually, it’s allowing us to decide also on imposing tariffs on different Russian goods also on other categories. So there are possibilities to react also in WTO framework in extreme cases, and something which have actually done.

Then on the hypothetical scenarios, I would say, on China and Taiwan, well, obviously, from the EU side, we are insisting on the preservation of the status quo and not changing of the status quo by military means or coercion. So that’s a principle how we are approaching this Taiwan issue from the EU. And obviously, if there were challenge to that status quo by military means, or by other coercive means, as a global community we will need to discuss what our response will have to be. And EU will—certainly will be part of this discussion. But as I was mentioning before, if as a collective West we are demonstrating that we are not able even to stop Russia, good luck with stopping China.

SAPIRO: Question there.

Q: Thank you very much, Commissioner. Liana Fix, I’m with the Council on Foreign Relations.

Olaf Scholz has just returned from—or, is returning from Beijing. And has signed, among others, an agreement on a dialogue on autonomous driving between Berlin and Beijing. How much support do you feel has the Commission for its probe on Chinese subsidies? Do you feel there is enough support by member states? Or do you feel actions like these from Germany might dilute those efforts?

DOMBROVSKIS: Well, I would not directly link the two. Of course, I’m not aware of the specific content of the agreement. But it’s true that there’s work ongoing on development of autonomous driving around the world. And if there are certain angles of cooperation which Germany and China had formed on this, obviously they can proceed with this. And that’s not directly linked with the distortions of trade which we are facing. So specifically on battery electrical vehicles, we launched anti-subsidy investigation because, on one hand, we had prima facie evidence of presence of countervailable subsidies. On other hand, we see the risk of injury for EU automotive industry.

Just to illustrate, in the last two, three years, market share of Chinese-brand electrical vehicles in EU market has increased from less than 1 percent to 8 percent. And rapidly growing. Since the launch of the probe imports of Chinese-battery electric vehicles have increased and as a 20 percent. So, clearly, there is this risk of injury. So we are conducting this investigation in line with all applicable WTO rules and principles, meaning that it’s a facts-based and also potential countervailing duties are proportionate to the presence of those countervailing subsidies. But, as you know, EU has very large automotive industry. From that point of view, there is a lot at stake economically.

SAPIRO: We’re going to pause questions in the room for just a moment because we have a virtual question.

OPERATOR: We’ll take our next question from Chris Thomas.

Q: Hi. Good morning there. I’m actually sitting in Beijing, across the street from your embassy here. I’m on the board of the Atlantic Council and several other organizations.

And we kind of are harping again on this China issue. But if you—there’s sort of two ways that you can approach it. One is that negotiations, carrot, sticks, discussions can actually lead to—encourage them to return to a more equitable trade basis. Or your—it’s not possible, and reading the tea leaves in many ways it hasn’t been possible, you know, tracking the developments in the last ten years, and you have to act unilaterally. And the question is, if Europe has to act unilaterally and act unilaterally consistently and strongly for many years to fix a situation—we’ve taken many years to get into this problem. It’s going to take us many, many years to get out. Do you think Europe has the political cohesion to hold on to that through multiple administrations, through multiple economic cycles, through all of the time and expense that it will take to actually modify behavior, if you have to work unilaterally?

DOMBROVSKIS: Well, first of all, as I was saying, we are certainly engaging with China. We are in discussion with Chinese authorities on all of those issues. And we are making progress in some areas. So we must say—we are not making progress in other areas also must be said. We had seen also recently a number of high-level engagements from U.S. with China. So obviously, China is the world’s second biggest economy. It’s becoming a global superpower. So obviously, we need to be engaged and in discussions with China. At the same time, if we see that this engagement is not producing in some areas, we need to act autonomously. And we have necessary autonomous trade tools and trade defense instruments to act also autonomously, if necessary.

SAPIRO: There’s a question on my right.

Q: Gary Horlick.

You know, a lot of elections this year, one of them in the U.K. What would the Commission or European community’s union’s agenda be with the new British government—hypothetical new British government?

DOMBROVSKIS: Well, as regards EU-U.K. relations, well, we are neighbors. We are like-minded partners. So on the whole range of global issues, from countering Russia’s aggression to role of the WTO. So certainly, EU will continue close engagement also with the next U.K. government across all these issues. And also our trade relation is based on Trade and Cooperation Agreement, which is actually very ambitious trade deal in both the level of trade liberalization. It’s basically zero for zero. And in the scope of its coverage. OK, it’s not quite as seamless as it was when U.K. was in the single market. Obviously, there are some barriers if you are outside the single market, because that was a choice of the U.K. But nevertheless, we continue to have also very intense trade and investment engagement, which is based on very ambitious—probably the most ambitious trade agreement which we have.

SAPIRO: I saw a hand. Yes. Please.

Q: Hi. Andrea Shalal with Reuters. Hi. Thank you so much for doing this.

I have several questions for you, but one of them is whether—you know, what your response is to the increase in tariffs that President Biden announced yesterday. I’ve been spending a lot of time at the IMF, as you have, and at these meetings. And, of course, there’s growing concern about the, you know, kind of measures that distort trade. You know, what is your sense about whether this balance is right between kind of defending interests against China, on one hand, and then on the other hand, you know, continuing to build a relationship with them?

And then separately, I just wanted to ask you, there’s been a lot of discussion this week with regard to what to do with the Russian sovereign assets that are being held, that are frozen. And I wonder if you can give us an update on whether you’re seeing some kind of coalescing around a proposal to use the interest, and then pull that forward and use that as collateral for loans or bonds. Thank you so much.

DOMBROVSKIS: Yeah. Well, first of all, on this President Biden announcement on increasing tariffs on Chinese steel imports, well, obviously, we will need to have discussions and engagements with our U.S. counterparts. First of all, on what exactly is envisaged, and then how—what kind of steps are going to be taken, just to understand better what is coming. And obviously, we’ll need to discuss the implications of this step also for a global steel market, and for also EU-U.S. bilateral trade in in this area. Because all steel market is certainly globally connected. There is a problem of global overcapacity, where once again the main source is China. So that’s where this measure obviously is coming from.

Also in the EU, if you look the area—on our trade defense measures, most of our trade defense measures which are in application are actually in the area of steel. And, again, most of them directed vis-à-vis China. Even so, we also have a global steel safeguard in place. So certainly it’s an issue which requires our continued attention and engagement. As you know, we had been also engaged on negotiations on global steel and aluminum arrangement, which probably would help provide this as a structure also to deal with challenges like this more specifically. Unfortunately, we were not able to conclude this agreement, because as the deadline of October last year was approaching increasingly it was clear that U.S. is not ready to remove 232 tariff rate quotas, which it imposes on EU steel and aluminum. And our message remains the same. We would be better off if we would not be working against each other, also in this area, but actually together to address global challenges.

SAPIRO: And Andrea had a second question.

DOMBROVSKIS: Oh, on Russian assets, there was a second question indeed. So on sovereign Russian assets, indeed there are more than—or, around 300 billion euros of Russia’s central bank assets which are immobilized around the world. More than 200 billion euros of those are actually in the EU. So if we now look at the steps concerning those immobilized assets. So, first, in the EU, European Commission came with a proposal, and member states are currently discussing it, and hopefully soon will agree, to use the extraordinary profits coming from those immobilized assets to support Ukraine. And actually, we proposed that 90 percent of that money goes to military support and 10 for—10 percent for reconstruction. But we can change this proportion each year, depending on the needs.

So, all in all, this, according to the current interest rates, can generate something like 3 billion euros per year for Ukraine. Then the question obviously is what to do with principal of the assets themselves. And there is already G-7 decision that Russian assets are stay immobilized unless or until Russia pays reparations to Ukraine for the damage it has created. So political signal is very clear that this money is not just going to go—going to go back to Russia at some stage. There are clear preconditions, which obviously makes this discussion on the use of Russian assets a very valid discussion. And it’s currently ongoing at G-7 level. And what is discussed is some kind of collateralized solutions, using those Russian assets as collateral to provide loans to Ukraine. There are different possible models, but what I can say is those discussions are ongoing and EU is engaging constructively on those.

SAPIRO: These are both very important developments. Do—I just want to follow up—do you have a sense of the timeline for the decision on the interest?

DOMBROVSKIS: That should be done still in the first half of this year. So the next few months.

SAPIRO: Good. Thanks. Good. And there was a question behind Andrea.

Q: Thank you very much. Han-koo Yeo, Peterson Institute and former trade minister of Korea.

I want to ask a question about this green steel. You know, this greening the steel sector is very important. But looks like the negotiation is stuck between U.S. and EU. But in the end, we need more global approach, especially developing the standard, measurement, et cetera, among, you know, all these—you know, the major steel producing countries. So what do you think about kind of resetting the negotiation, if it continued to get stuck between these two, and then opening up—opening it up to other kind of major steel producing, but likeminded, countries? Thank you.

DOMBROVSKIS: Yeah, indeed. We actually do discuss all of those topics with our U.S. counterparts. We had also quite extensive discussions with USTR Katherine Tai on these topics when it was becoming clear that we are not concluding GSA at the current stage. So we agreed that we continue actually engagement and work on both workstreams. Meaning greening of the steel industry and addressing global overcapacity. So, because both topics require our attention on their own right, so we agreed that we continue this engagement across those two workstreams. We also extended, let’s say, U.S. suspension of the Trump tariffs. So continuing with a system of tariff rate quotas. We extend the suspension of our countermeasures.

So in a sense, this suspension now continues, even though, frankly, we are not happy with the status quo because we have completely suspended our countermeasures, whereas U.S. continues to impose tariff rate quotas on our imports. And, actually, around 20 percent of our exports to U.S. is subject to those tariffs. So and then, we also discussed that, indeed, we need to start this outreach to the likeminded partners, because those are topics which are obviously broader than just bilateral between EU and U.S. And the idea was that—to reach agreement on this, and then start engagement with other partners. And now probably we need to do it in parallel, also this engagement with other partners. And then already during the next political cycle, so after elections on both sides of Atlantic, we need to see how we start reintegrating those two workstreams, and potentially coming back to this idea of GSA.

SAPIRO: Yes, question there.

Q: I think there’s time for one more question. Matthias Matthijs, senior fellow for Europe at the Council here.

You’ve been at the Commission for about ten years. It’s your tenth year, right? You joined in a very different world. A much more—I mean, Mike Froman was USTR. We were talking TTIP. The one thing you didn’t mention in your conversation and during Q&A is industrial policy, right? And so if you look at what the Chinese have been able to do over the last ten years with solar, with wind, with electric vehicles, what, of course, the Biden administration set out to do with the IRA, we often read that there is an active debate within the Commission between Margrethe Vestager, from competition, and maybe Thierry Breton from DG GROW about the direction the EU should be going.

And we then often read whether von der Leyen sides with one or the other. But you are always protected, it seems. But I would love to hear your views on this. Is industrial policy—is this a game that the EU can play the way the Chinese and the Americans are playing it, given that the DNA of the EU really is single market competition rules? And it’s not set up—I mean, basically it’s rules of the Single European Act of Maastricht are poured into treaties and set up in a way that makes it very hard for the EU, that doesn’t have the resources to do this. But, of course, the Germans and the French could, but that then would go against the fundamental rules of the EU. So I wonder where you—where you stand in these debates, as they are ongoing in the Commission, and where you see the EU going after the June elections? Thank you.

DOMBROVSKIS: Well, first of all, it’s clear that the EU does have an industrial policy. And this work on industrial policy has become more active in recent years. And in part, it’s also related to developments in other countries, including—well, we discussed China a lot, but also developments in the U.S., including the Inflation Reduction Act, were lots of industrial policy. So and as a result, we are also having this work. We have our Green Deal industrial plan. We have net zero industry actor. And indeed, you already outlined the balancing act we need to find here. On one hand, the EU’s largest economic asset is the EU single market. Free movement of goods, services, capital, and labor across the EU. But that’s, indeed as you’re implying, depends also on strict state aid controls to avoid distortions to the—within that single market. And that’s where the EU competition policy comes in.

So now, obviously, we are facing a new set of challenges. So we also have to reassess somewhat this balance. You know, right now we have a temporary state aid framework which will be applying till end of 2025, to give a member states more flexibility on providing state aid. There are substantial also EU programs which are possible to use for supporting the industry’s (staples ?) funding, which is available through recovery and resilience facilities, through other EU funding programs. Also, with this temporary state aid framework, member states can do more. But of course, we also need to watch where exactly we are heading, and there we are having two difficulties.

One, if we were to engage in global subsidy race, subsidy races tend to be ineffective and expensive. So that will be a massive waste of resources. So, without not really achieving the policy goals which we would like to achieve. And second, that would be a distortion within the single market because, you rightly noted, not all EU member states have the same possibilities to provide state aid, and maybe larger and richer countries, and Germany and France help, many smaller and economically less-developed countries will not help, nowhere nearly these possibilities. So then it has to be accompanied also with some EU funding instruments, additional EU funding instruments, actually, to address the distortions.

So it’s—therefore, as you’ll see, it’s kind of a nuanced and complicated discussion which we are having within the EU on those topics. And there is an inbuilt tension. On one hand, we want to help European companies, especially the large European companies, to be able to compete globally. On the other hand, we don’t want to distort the playing field using the single market. And so we’ll need to find this right balance. One tool which we are now starting to use, as we mentioned some of the—some of the probes—is foreign subsidy instruments. That we are actually, say, we may stop certain goods or certain public procurement procedures if foreign competitors are gaining advantage over EU companies with the help of subsidies.

So also limiting distortions of foreign subsidies in the EU single market, because suddenly those distortions are present and with more activist industrial policies in many major economies right now, it’s only going to be even more present. So I’m afraid that this is a topic which is going to be with us, and we will be—constantly will have to work on this. And constantly we’ll need to find this right balance between those two objectives or two issues we need to address.

SAPIRO: That’s an important note to end on. I want to thank all of you for coming. And a very special thank you to Valdis for being with us this morning, and for such a terrific, far-ranging discussion. The video and the transcript will be posted on the CFR website. Thank you all again. (Applause.)

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