Economy

BRUSSELS (Reuters) – The European Commission will unveil on Wednesday a proposal to make large companies operating in the European Union check that their suppliers from around the world do not use slave or child labour and that they respect environmental standards, a draft of the law showed.The proposal, called Corporate Sustainability Due Diligence, will also oblige boards of EU firms to ensure that their business model and strategy align with limiting global warming to 1.5 Celsius, as agreed under the Paris climate treaty. EU firms will have to make sure that their suppliers are not using forced labour, child labour, of inadequate workplace health and safety, exploitation of workers, or environmental offences like greenhouse gas emissions, pollution, or biodiversity loss and ecosystem degradation. The Commission proposal, seen by Reuters, will only become EU law after lengthy negotiations with the European Parliament and EU governments that are likely to take more than a year. “The law could be a true game-changer for corporations’ impact on the planet, or it could be a damp squib if big business lobbies get their wishes,” non-governmental organisation Friends of the Earth Europe said in a statement.The proposal estimates it would apply to 13,000 EU firms. The main criterion would be that a firm employs more than 500 people and has net turnover of more than 150 million euros. The threshold would be lower — 250 employees and 40 million turnover — for firms in high-impact sectors like clothes, shoes, animals, wood, food and beverages, oil, gas, coal, metals and metal ores, construction materials, fuels or chemicals. Still, that means 99% of Europe’s firms would be exempt, as they do not reach these thresholds. The law would also apply to around 4,000 companies from outside the EU, but operating in the 27-nation bloc. For them, the 150 million net turnover would have to be generated within the EU, or, if they fall in to the high-impact sector category, 40 million euros of turnover within the EU.Compliance with these goals would be monitored by EU governments. Companies ignoring them would face fines.EU firms would also face civil liability if the offence against human rights or the environment was committed by its supplier with whom they have lasting and frequent cooperation.The private lawsuit against an EU company for misconduct of its supplier would, however, have to show the offence could have been foreseen, prevented, ceased or mitigated with appropriate due diligence measures by the EU firm. “It will in practice be difficult to prevent all risks through global value chains,” the Commision draft said. “Based on what we know this is a massive step in the right direction in the fight against corporate abuse,” said Aurelie Skrobik, Corporate Accountability Campaigner at Global Witness.”This said, we need to ensure that the law holds companies liable for harms throughout their entire supply chains and that there are no loopholes. There should be no ambiguity in the final text – victims must be able to seek justice through EU courts,” she said. More

The consensus forecast of 12 analysts surveyed was for inflation to grow to 7.17% from 7.01% in late January. If the prediction is correct, it would be the first increase since late November, when inflation hit a 20-year high.The core rate of inflation, which strips out some volatile food and energy items, was seen accelerating to 6.46%, which would be the highest rate since August 2001.The Bank of Mexico targets inflation of 3%, with a one percentage point tolerance range above and below that. Earlier this month the bank raised its benchmark interest rate for the sixth consecutive time, citing inflation.Its next monetary policy decision is scheduled for March 24, a week after the United States’ Federal Reserve is expected to raise interest rates after years of sitting near zero.Compared to the previous month, Mexican consumer prices are estimated to have increased by 0.40% in the first half of February with the core price index seen advancing 0.35%.Mexico’s national statistics agency will publish the latest inflation data on Thursday morning. More

Downing Street on Monday distanced itself from suggestions by the new Brexit opportunities minister that the UK might cut red tape by unilaterally accepting testing on industrial goods by the EU and other countries.Jacob Rees-Mogg this month endorsed a report by the rightwing Institute of Economic Affairs think-tank which said the UK could “unilaterally recognise EU regulations and conformity assessments”.He added to confusion in the British business community, which is gearing up for a new domestic testing regime, when he told The Times there was “no point” in the UK repeating tests that other countries did to an acceptable standard.But on Monday, Number 10 said Rees-Mogg was not setting out a new government stance: “Our position has not changed.” Government officials confirmed that Rees-Mogg was articulating his broad ambitions for his new job rather than specific new policies on removing “non-tariff barriers” to trade.Rees-Mogg’s apparent acceptance that the UK should unilaterally recognise testing by the EU and other countries to avoid duplicating costs for business had left industry groups perplexed. One senior industry executive said such a policy, while attractive to many companies seeking to avoid Brexit red tape, would have “driven a coach and horses” through three years of government policy, which has insisted on the UK creating its own copycat standards for industrial goods and chemicals. The government is demanding that from January 1 2023 businesses wanting to place goods in the UK market must meet a new “UKCA” safety standard, which largely duplicates the EU’s “CE” safety mark. In a call with industry last week, officials from the Department for Business, Energy and Industrial Strategy repeated warnings that companies needed to prepare for the new UKCA regime.“We didn’t know if this was a change in policy, or if the minister was just freelancing, but it looked very much like this hadn’t been through the Whitehall government policymaking sausage machine,” the executive added.A senior auto industry executive added that Rees-Mogg’s remarks had raised hopes that Downing Street might have been about to change tack on the issue. “It is disappointing that a senior government minister has such a weak grasp of the details of this critical area of regulation,” he added.William Bain, head of trade policy at the British Chambers of Commerce, said business was still unpersuaded that the UKCA scheme was necessary or practical. “We need a clear cross-government message that it is willing to listen well and act pragmatically in the interests of UK businesses,” he added.Despite government insistence that it was sticking to its guns on UKCA marks, there have been some signs that the government is listening to industry’s complaints by twice extending the original deadlines for meeting the new standards’ regime.

The chemical industry is in negotiations with Defra, the environment department, on how to reduce the burdens created by the new “UK Reach” chemicals safety database after ministers announced registration for the scheme would be delayed by two years “It does look like the government are getting the message about the need to match standards,” said a person familiar with the discussions.During the Brexit trade negotiations, industry persistently lobbied for the UK to strike an agreement with the EU to mutually recognise standards, such as the “CE” safety and quality mark and the EU Reach chemicals regulations database.In the event, the EU refused to cut such a deal on terms acceptable to the UK. Michel Barnier, the EU chief negotiator, said Brexit meant that the UK must lose its place as a “regulatory and certification hub” for goods and services entering the EU single market.As a result, the UK started the UKCA mark and its own version of the chemicals database, both of which have met strong resistance from business groups, which have argued the schemes create costs for no gain.Russell Antram, head of EU trade at the CBI business group, said that if the UK and EU were unable to reach mutual recognition agreements, unilateral recognition on the UK side would be a “step in the right direction” for many companies.However, he cautioned that unilateral recognition of standards by the UK would not be without its problems, since it could leave UK exporters facing more checks than EU exporters. More

LONDON (Reuters) – Requiring regulators to keep the financial sector globally competitive following Brexit must not bring back the damaging booms and busts of the past, a senior Bank of England official said on Monday.Britain’s finance ministry has said it will add a formal objective for the central bank and the Financial Conduct Authority to support financial sector competitiveness and long-term economic growth, without damaging their ability to keep firms and markets safe, or protect consumers.The financial sector says it will help London remain a global financial centre after it was largely cut off from the European Union following Britain’s departure.Critics warn of a return to the ‘light touch’ regime that ended with taxpayers bailing out banks in the financial crisis over a decade ago.Much hinges on how the new objective is worded, said Vicky Saporta, an executive director at the central bank.”If one wanted to avoid short term boosts in financial services exports that might result in busts that are not good for long term economic growth, one would nest competitiveness into the long-term economic growth objective,” Saporta told parliament’s Treasury Select Committee.The BoE and FCA currently need only ‘have regard’ to competitiveness, a weaker requirement.Britain’s review of “Solvency II” insurer capital rules inherited from the EU is seen as a litmus test of how far it can exploit its “Brexit freedoms” to write its own rules, but Saporta warned it must not dilute protection for policyholders.The BoE will consult around mid-year on implementing changes once the government has set out its plans, Saporta said.The new competitiveness objective could also influence other reforms such as implementing new global bank capital rules, and making Britain’s wholesale capital market more attractive to global investors.”Long term growth and competitiveness is not achieved by having low standards,” FCA director of wholesale markets Edwin Schooling Latter told lawmakers.”There is nothing specific on the table where I am worried that Treasury, for example, is pressing us to have lower standards than we think is appropriate,” Schooling Latter said. More

LONDON (Reuters) -The European Union’s 19 trillion euro ($21.6 trillion)investment funds industry is failing to exploit the bloc’s single market, saddling investors with high costs and opaque selling practices, the European Court of Auditors said in a critical report on Monday.A full review of EU investment fund rules is needed by 2024 as minor revisions will not be enough to create a better market, according to the independent EU body which looks after the interests of the bloc’s taxpayers.The EU’s single market seeks to tear down cross-border barriers to trade and offer customers more choice and competition.The pan-EU funds sector was born in 1985 and is second only to that in the United States, but individual EU funds remain smaller than their U.S. equivalents.Almost 70% of the market remains concentrated in four of the bloc’s 27 states – Luxembourg, Ireland, Germany and France – with little cross-border investment, the auditors said.”The objective of a true single market for investment funds has not been met, and cross-border activities remain rare,” they said.”Funds are still not supervised consistently across all member states, investor protection remains weak, and systemic risks are not adequately monitored.”A spokesperson for the European Commission said it regretted that the ECA did not fully recognise the achieved benefits of the single market for investment funds.The timing of the audit also did not allow for recent changes and new legislative proposals to be evaluated, including rules to remove barriers, the spokesperson said. “The EU has a robust regulatory and supervisory framework governing collective investment funds in place.”In their report, the auditors said that many of the expected gains for investors, such as lower fees and greater choice, have not yet materialised as costs continue to be high and difficult to compare between EU countries.Greenwashing, or companies overstating their sustainability credentials, is also a problem as such labelling is unregulated, they added.The EU’s executive European Commission has made several amendments to EU investment fund rules over the years, but it was not always able to show their merits, and benefits may have overestimated, the report said. The commission’s own performance measurement for the sector does not comply with its own criteria.The EU executive should carry out a comprehensive fitness check on legislation covering investment funds by 2024 and, depending on its outcome, take steps to achieve the objectives of the single market more effectively, the report said.The bloc should also consider giving its securities watchdog ESMA powers by 2024 to force national regulators to supervise the funds sector properly and consistently, it said.($1 = 0.8812 euros) More

Hello and welcome to another week of wondering when the whole trade story might suddenly be dominated by a geopolitical rupture and energy shock emanating from eastern Europe rather than the slow and technocratic processes of, for example, the EU taking China to the World Trade Organization over what it calls a power grab to set smartphone technology licensing rates, the UK reaching the next stage of its application to join the Asia-Pacific CPTPP pact, or ministers wanting the WTO to hold its postponed ministerial by the end of June. Apparently, the question of a Ukraine invasion all comes down to a few old men in Moscow who aren’t really that bothered about what happens to the Russian economy and might even personally benefit from sanctions, which isn’t the most comforting thought.Speaking of which, in future Trade Secrets we’ll take a look at financial and trade sanctions in the Russia context and whether co-ordination between the two big participants (the US and Europe) can be made effective. In the rest of today’s newsletter we’ll look at two issues: first, the broader subject of transatlantic co-operation on strategic trade policy; second, the EU-Africa Union summit at the end of last week and what it tells us about trade and development.Charted waters this week looks at how the price of a British pint is being hit by the rising cost of raw ingredients.The fond hopes of co-ordinated unilateralismThe EU is tooling up to be more strategically assertive on trade, the US wants the EU as a geopolitical ally against China and (of course) Russia, ergo the US should be super-keen on the EU’s new get-tough direction. Right? Right?Well, hmm. Depends how they get used and against whom. This came to mind because I heard an interesting nugget recently. The EU’s anti-coercion instrument (ACI) has built up a lot of momentum, including with some central and eastern European countries that aren’t always on board with tools that might be used for protectionist ends. Why? Partly, because said countries instinctively look to the Atlanticist alliance. And what with the Russia-Ukraine (and the China-Lithuania) situation, there’s a perception there that the US is looking quite kindly on the ACI as evidence that the EU is getting serious about an assertive strategic trade policy.If the US ends up a fan of the ACI (it will no doubt depend on exactly what the instrument eventually looks like), it will be quite the turnround. The ACI started life as a weapon created with the US as a target. It was a response to former president Donald Trump’s threats to impose tariffs on French handbags and other strategically vital goods in retaliation for EU countries imposing digital services taxes. (To be more precise, the ACI was the European Commission’s attempt to head off plans in the European Parliament to create an even more radical unilateral tool that looked a lot like the US Section 301.) With the digital services tax issue defused and Joe Biden replacing Trump, the likely target shifted to China and Russia. It’s not the only time recently a US policy has inspired an EU counterpart. There’s a lot of America-envy going on in certain quarters of Brussels at the moment. The European Chips Act was designed to generate a headline figure somewhere near the $52bn the US Congress was planning to dump on America’s semiconductor industry, and the export restrictions in the European policy mimic the use of the US Defense Production Act in requiring state-subsidised companies to prioritise the domestic market when required.But creating similar kinds of tools doesn’t mean transatlantic coherence and co-ordination. Although there are some vague references to co-operation on semiconductors, for example, it’s pretty clear that each economy is going its own way on boosting production. As for the anti-coercion instrument, it would be unwise to assume it could never be turned on the US, especially if there’s a change of administration back to Trump or someone like him. There is an awful lot of unilateralism going around with a hope rather than a clear plan that it will be co-ordinated.Africa and Europe have a less than cordial chatThe leaders of the unions European and African had a summit at the end of last week. It wasn’t exactly all rainbows and kittens. Predictably, despite the European Commission’s attempts to change the conversation by talking about mobile vaccine factories and technology transfer, the African Union leaders brought up the intellectual property waiver they are seeking in the WTO “Trips” agreement about which I was sceptical last week. However far the issue remains from resolution, it still isn’t going away, and the EU had to promise the AU another meeting in the spring with no doubt a great deal of painful communique-drafting to come.With regard to actual economic relations between the two continents (please skip lightly over my crude generalising here), it’s remarkable how the debate has shifted from endless talks of the geometry of preferential trading arrangements. Time was when the discussions were all about Economic Partnership Agreements (Epas) and Everything But Arms and tariffs and rules of origin and so on. Then it turned out that straight-up market access wasn’t really the problem with African economies selling into the EU so much as delivering the investment and growth that meant they would have something to sell. And there China often looks like a much better partner than Europe.Trade between the EU and Africa has stagnated for a decade despite highly preferential treatment for most of Africa’s exports. Meanwhile, internal rivalries undermined attempts to create blocs with critical mass. The EU agreed last year to implement bilaterally with Kenya a deal originally intended to encompass five countries in the East African Community, something of an admission of defeat. The EU’s problem now is that the trade-related areas African governments want to discuss, such as European investment in infrastructure to rival China, are issues where the EU has only weak collective ability to act. Trade policy isn’t mainly about trade deals any more, and this is a clear example of why.Charted watersNow could be a good time to forswear the demon drink. British pub groups have warned of a looming escalation in beer prices owing to the increase in the cost of the raw ingredients — the price of malting barley, the most important element of lager, have more than doubled in the past year.It is an international problem, compounded by snarl-ups in global supply chains. The problem for retailers — including pub landlords — is how much of the extra cost to pass on to their customers. They may of course welcome a stiff drink — whatever the price — to alleviate the misery of escalating inflation more generally.Trade linksChina’s shoppers are switching to local brands, a trend with big implications for global supply chains.The transport company Flexport’s regular indicator of timeliness in delivering shipping containers shows no sign of improvement, indicating that the supply chain crunch continues.Exports of Mexican avocados to the US will resume after threats to an American inspector temporarily halted sales.Australia is expecting a surge of tourists as it admits double-vaccinated travellers for the first time in two years. More

MOSCOW (Reuters) – The rouble slid to a more than three-week low on Monday, erasing earlier gains in a volatile session, and Russian stocks plunged as Western fears of an imminent military action in Ukraine outweighed hopes that diplomatic efforts would yield results. The Kremlin said there were no concrete plans yet for a summit between Russian President Vladimir Putin and U.S. President Joe Biden, but that a call or meeting could be set up at any time, offering a possible path out of one of the most dangerous European crises in decades. But Russian assets, highly sensitive to any news over Ukraine, headed lower as Britain warned that a Russian invasion of Ukraine was highly likely and reports of sporadic shelling continued. Moscow has repeatedly denied that it plans to invade its neighbour. By 1212 GMT, the rouble was down 1.5% against the dollar at 78.45 , its weakest since Jan. 27, sliding from as strong as 76.1450 earlier in the session. It had lost 1.6% to 88.96 against the euro, earlier hitting its weakest point since Jan. 27.”The week again opens to a wind of fragile hope on the geopolitical front,” said BCS Global Markets, pointing to the possible Putin-Biden summit and a meeting between U.S. Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov planned for Feb. 24.”All said, hope dies hard, but the risk of conflict lingers.”Yields on Russia’s 10-year benchmark OFZ bonds leapt to 10.22%, their highest since February 2016. Yields move inversely to prices.Russia’s longer-dated sovereign dollar bonds traded near their lowest since March 2020.FINANCIAL SANCTIONS THREATDespite Moscow’s repeated denials its assets have been hammered by fears of a military conflict that would almost certainly trigger sweeping new Western sanctions against Moscow.Washington has prepared an initial package of sanctions against Russia that includes barring U.S. financial institutions from processing transactions for major Russian banks, three people familiar with the matter told Reuters.Shares of Russia’s top bank Sberbank fell 8.4%, underperforming the wider market, which had sunk to its lowest since November 2020. VTB was trading 6.4% lower. The dollar-denominated RTS index was down 8.7% at 1,271.1 points. The rouble-based MOEX Russian index was 6.8% lower at 3,164.2 points.”Russian equities remained under pressure amid ever more worrying news from the self-proclaimed republics of Donetsk and Luhansk,” said Aton investment management firm in a note. More

LONDON (Reuters) -The global liquefied natural gas (LNG) market is expected to remain tight this year following last year’s volatility which saw demand rise 6% and gas prices hit an all-time high, Shell (LON:RDSa) said on Monday.Natural gas prices around the world soared late last year due to a combination of tightening supplies, weaker renewable power generation and a strong growth after Covid-19.”The high prices we’re seeing at the moment are being driven by fundamentals, low storage levels and supply uncertainty,” said Steve Hill, executive vice president, energy marketing. He added that the lack of new supply and the reduction of investment in LNG are other reasons behind the tight market.Shell, the world’s largest buyer and seller of LNG, said earlier on Monday that global trade in liquefied natural gas (LNG) in 2021 grew 6% year on year to 380 million tonnes as economies recovered from the impact of the COVID-19 pandemic.LNG demand is expected to almost double to 700 mln tonnes by 2040, Shell said in its annual LNG market outlook, adding that liquefied gas has a key role to play as a back-up in the event of intermittent renewable supply.Soaring gas prices have put around 30 British energy suppliers out of business while some heavy industry companies curtailed output in energy-intensive sectors. LNG prices lurched from record lows under $2 per mmBtu in 2020 to record highs of $56 in October 2021.Benchmark prices currently stand at about $25 per mmBtu.”Last year showed just how crucial gas and LNG are in providing communities around the world with energy,” said Wael Sawan, integrated gas, renewables and energy solutions director at Shell.The world’s No.2 traded energy company said more investment is needed to meet rising LNG demand, particularly in Asia, especially with a forecast supply-demand gap in the mid-2020s.China and South Korea led LNG demand growth in 2021. China increased its LNG imports by 12 million tonnes to 79 million.Last year Chinese LNG buyers signed long-term contracts for more than 20 million tonnes a year.Global LNG exports grew in 2021 despite outages that dented availability of LNG for delivery. The United States led export growth with a year-on-year increase of 24 million tonnes, Shell’s report said.The U.S. Energy Information Administration projects that U.S. LNG exports will reach 11.5 billion cubic feet per day (bcfd) in 2022, becoming the world’s largest LNG exporter ahead of Australia and Qatar. More