Europe’s Place in the World

POSITION | GEOECONOMICS | GLOBAL PERSPECTIVES

Europe’s Place in the World Twelve Propositions for a Stronger Europe Shaping Globalization

October 10, 2023 Summary The Federation of German Industries (BDI) supports the EU’s open strategic autonomy (OSA) goal.

We agree that effective trade defenses and diversification will solve many of the political challenges associated with globalization’s partial disintegration. However, too often is strategic autonomy associated with autarky or simply with ramping up trade defense measures. Too little attention is paid to the economic prerequisites for successful diversification and how foreign economic relations and domestic economic value creation go hand in hand. German Industry argues that Europeans should try to do more than simply deter unwanted policy choices by external actors. Europe should strive to give even the most difficult of partners a good reason for cooperative behavior.

With this paper, the BDI will start the initiative "Europe’s Place in the World”. Europeans need to think about economic reforms and the continued integration of our common market in terms of positive the leverage that this would provide us to effectively pursue our economic policy interests. The guiding principle of “Europe’s Place in the World” is that only when we are strong at home can we be successful abroad.

This paper is only the first in a series and intends to implement the initiative conceptually. This first paper is the start of a more comprehensive and strategic approach for German Industry in conceptualizing how the EU’s external challenges also put Europeans on the spot domestically and how these challenges should be met.

Key Recommendations For this conceptual start, German Industry draws on four position papers published between October 2022 and February 2023 to illustrate how an integrated and comprehensive approach would add a positive economic agenda to Europe’s strategic global position. For this paper, the authors have distilled three propositions each. Through a total of twelve petitions, German industry will approach issue areas across policy sectors, create intellectual connections between siloed issue areas, and – thereby – form an integrated understanding from which Europe can position itself more favorably in a changing world:

Matthias Krämer | Außenwirtschaftspolitik | T: +40 30 2028-1562 | m.kraemer@bdi.eu | www.bdi.eu Dr. Nikolas Keßels | Außenwirtschaftspolitik | T: +49 30 2028-1518 | n.kessels@bdi.eu | www.bdi.eu

Europe’s Place in the World

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New Globalization: Europe requires appropriate responses to a new and heavily politicized form of globalization that already warrants that economic operators enhance their capability to adapt to non-economic exogenous shocks while retaining the versatility of competing in a global marketplace. Investments at home and avoiding concentration risks will be key for businesses.

Moreover, EU trade agreements that enter into force play an important role in achieving diversified supply chains.

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European Sovereignty: Reducing its dependencies does not mean that Europe should strive for autarky. However, there are areas where accentuating European capabilities would serve the interests of businesses in the single market. German Industries suggests that semiconductor production, striving for affordable energy independence and an enhanced footprint in international standard-setting would be a good place to start.

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Critical Raw Materials: Europe is very dependent on imports of critical raw materials like rare earth elements and lithium. Therefore, a future EU Critical Raw Materials Act should ensure supply security, address the high energy and electricity costs for the extraction, processing, and recycling of strategic raw materials, and ensure that financial support is available for the development and expansion of projects at home and abroad.

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World Trade Organization: Multilateral trade agreements remain the trade policy north star for German Industries. With the WTO in crisis, there is still room for maneuver. Europe should lead initiatives focusing on plurilateral agreements within the WTO, meeting the challenge of tradedistorting subsidies, and addressing issues regarding the dispute settlement body in concert with the United States.

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Table of Contents Summary .............................................................................................................................................. 1 Europe: An Economic Union in a Geopolitical World ..................................................................... 4 Challenges Galore … ............................................................................................................................ 4 … So Do Strategies ............................................................................................................................... 5 Towards a Positive Agenda................................................................................................................... 6 Europeans Should Mean Business ....................................................................................................... 7 Strong at Home, Globally Successful ............................................................................................... 7 Propositions for a Stronger Europe .................................................................................................. 8 A New Globalization .............................................................................................................................. 8 European Sovereignty ........................................................................................................................... 9 Critical Raw Materials Strategy ........................................................................................................... 10 World Trade Organization ................................................................................................................... 11 Europe Moving Forward ................................................................................................................... 11 Imprint ................................................................................................................................................ 13

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Europe: An Economic Union in a Geopolitical World Over the decades during and after the Cold War, Europe has grown together, and its nations’ interdependencies increased because it understood that peace and stability after two World Wars can only be achieved if cooperation served the material – and in the European context that meant predominantly economic – interests of its members. Fundamentally, this approach is based on the fact that in the absence of a global government states are the single most authoritative unit in international relations and it is their interests that matter. It was 19th-century British Prime Minister Henry Temple who coined the corresponding bon mot that has since been attributed to a range of subsequent statesmen: “We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.” What was accurate during the birth of the nation-state still applies today. The material interests of countries still reign largely supreme in international relations.

Beneficial relations that provide tangible benefits remain the overarching driving force in international relations.

Over time, what started as European Communities developed large parts of Europe into a political union sui generis. The structural reality of today’s world requires Europeans to re-apply the functional logic of early European integration to the world beyond our borders. Wielding more economic heft will provide Europeans with the means to incentivize cooperative behavior from their partners outside of Europe. The Western alliance will only hold and our relationship with ascending powers only become enduring properly if Europe steadies its influence. To do so, Europe needs to provide an excellent economic rationale for cooperation rather than confrontation. Measures to ensure economic security and trade (defense) measures can only be one part of such a rationale. If the driving force of globalization is a rules-based economic exchange – that is, a fair transfer of economic resources to gain access to further economic resources –, then economic prowess can play a reasonably central role in incentivizing partners to choose absolute gains for all over the zero-sum logic of the few. Rather than a return to the intellectual complacency of “change-through-trade”, this is a call for Europeans to think of strategic autonomy also in terms of a positive economic agenda.

Challenges Galore …

The climate crisis and the necessary transformation of our fossil-reliant economy, Russia’s aggression against Ukraine and the war’s economic fallout, and the instability of an increasingly polarized world driven by Beijing’s ascend; add to this the myriad of (economic) crises of the last 15 to 20 years and Europeans surely have had plenty of reason to feel subjected to developments – that they have been forced to react to events rather than shaping them. This is a deeply frustrating experience because the European project still carries with it the promise and prospect for Europeans to remain agents of their fates. To do so, however, requires a re-thinking of how we go about our international relations in an age that is fundamentally opposite to the geopolitically benevolent time when we came together as the European Union in 1994.

More than thirty years after the Cold War and following years of globalization that have proven that common rules, markets, and the division of labor will benefit us more than the alternatives, power politics is back. Rules and conventions are regularly broken because, in a world that tries to live by the rule of law, those who break rules will always be relatively better off. In the absence of a single governing entity, Europe needs to learn a language of power suitable to its capabilities. That means, as a matter of course, that Europe must be able to leverage its material heft when foreign state actors avail themselves of globalization’s advantages without contributing to their sustained creation. However, Europe should at the same time utilize its economic cloud to incentivize favorable and rules-

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based relations. Europe is foremost a politico-economic union. Trade measures have been sharpened in recent years and new instruments are being discussed. Geoeconomic times require geoeconomic defenses. But deterrence cannot be the only answer. … So Do Strategies The German Government published its national security strategy1 and its China strategy2 in June and July of 2023. Also in June, the European Commission and the EU High Representative published their Communication for an Economic Security Strategy3. The Federation of German Industries will comment where appropriate on these strategies in detail. However, one common denominator of these publications is that they remain largely unspecific as to how exactly they envision policy going beyond controls. What is lacking is a constructive and positive agenda bringing together the necessities for both vigilance and economic interdependence.

Germany and Europe will not be able to control their way out of the great power conflict the world currently faces. Trade controls will certainly play a role. But they do not – in and of itself – approximate a strategy. Instead, governments should always ask themselves how they can pair new controls with opening areas for diversified economic activity. Liberal market economies and the democracies that have created them should not aim to copy centralist approaches by politicizing and securitizing all trade relationships. Instead when outlining areas in which national security concerns should take precedence over economic considerations, we need to do so sustainably and commit to the fundamental control imperative of “keeping foes at a distance, while running faster”. It is therefore our position that: 1. Measures need to be precisely tailored to the specific national security purpose a control measure is supposed to serve; 2. Controls need to reflect how the policy goal that is pursued warrants an intervention into the market; and 3. Measures need to be clear at what point a market intervention turns from trade control to protectionist policy.

Navigating the politico-economic grey area that is trade controls requires governments to rethink their role in making these controls work. Governments need to appreciate that leveraging economic interdependence comes at a cost. It is, for example, not enough to simply state that businesses should internalize the risk of their exposition to certain markets. As much as that is true, it also demands answers as to how to hedge the risk following such expositions. To be sure, governments should not assume private risks when business decisions turn bad. After the 2008 Global Financial Crisis, the public’s perception that profits remain private while losses can be socialized if they are just catastrophic enough was socially and economically corrosive. But – and that is of fundamental importance – requiring companies to diversify also requires the EU and its members to strengthen the business environment at home while opening markets abroad.

1 Federal Government (2023) National Security Strategy – Robust, Resilient, Sustainable: Integrated Security for Germany.

URL: https://www.nationalesicherheitsstrategie.de/National-Security-Strategy-EN.pdf (accessed August 15, 2023).

2 Federal Government (2023) Strategy on China; URL: https://www.auswaertigesamt.de/blob/2608580/49d50fecc479304c3da2e2079c55e106/china-strategie-en-data.pdf (accessed August 15, 2023).

3 European Commission (2023) European Economic Security Strategy, Joint Communication June 20; URL: https://circabc.europa.eu/rest/download/a75f3fb8-74e3-4f05-a433-fdbf406d5de6 (accessed August 15, 2023).

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It is just not enough to tell businesses to diversify. The tariff and non-tariff barriers to trade that stand in the way of meaningful diversification are inherently political in nature. Politics must address these barriers more effectively than in the past. If the problem is that certain economic exposure has become untenable both politically and economically – but remains economically important due to scaling opportunities –, then other markets need to be opened and enlarged.

Towards a Positive Agenda After completing its Trade Policy Review in early 2021, the European Commission outlined how it intended to approach its open strategic autonomy (OSA). It is described as "the EU’s ability to make its own choices and shape the world around it through leadership and engagement, reflecting its strategic interests and values." International cooperation, The Commission continued, should remain the preferred approach. To this end, the openness of the European Union was central, as it "brings prosperity, competitiveness, and dynamism". At the same time, however, the trade strategy states that this approach should enable the EU to "assertively [defend] its interests" and protect the “EU’s economy from unfair trade practices."4 It is the understanding of German Industry that Europe has worked quite intensively on the latter part of this equation. However, the insistence on international cooperation and an increased arsenal of trade measures will not be enough to prevail.

It is BDI's position, that the public discussion about OSA suffers from a significant blind spot. The strategy’s foreign trade facets have much in common with the debate on diversification. However, focusing purely on external diversification threatens to shortchange the debate about Europe’s prerequisite domestic faculties – as a place to do business and as a place from which business should be done with partners all over the world. The liberalization of markets on favorable terms for German and European companies will be successful only if actors in new target and procurement markets face rising opportunity costs should they not do business with Europeans. In short, we need to do more so that the world wants to increase its trade with a strong common market. EU trade agreements that enter into force play a crucial role here.

The German and European business communities are little to no familiar with the concept of OSA. Discussions and debates on this subject take place mostly in the political arena - in the member states and Brussels. This is surprising because German industries are particularly affected by economic policy discussions and decisions at the European level. What is more, the German export model and our reliance on the international division of labor have come under increasing pressure. The genuine strength of the German economy lies in its broad-based and deeply integrated industrial value chains.

These value chains facilitate specialization advantages and support the outstanding ability of German companies to offer networked system solutions on international markets as part of an alliance between large-scale industries and small and medium-sized enterprises.

Against this background, it becomes clear why diversification is a necessary yet complex debate for German Industry. In it, two seemingly opposed approaches to globalization inevitably collide with long-term stability versus short-term competitiveness. Diversification is a politico-economic debate revolving around the long-term implications of geopolitical risk concentration, risk exposure, and the political ramifications of economic interdependencies. It is in the long-term interest of the German Industry that diversification occurs. First, diversification would make companies’ business ventures more resilient. Second, it would serve as a disciplining signal to foreign political actors not to leverage economic

4 European Commission (2021) Trade Policy Review - An Open, Sustainable and Assertive Trade Policy. URL:

https://trade.ec.europa.eu/doclib/docs/2021/february/tradoc_159438.pdf (accessed August 10, 2023).

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interdependencies – after all, diversification provides flexibility in customer relations. However, for companies that are on the ground, good business sense requires economic operators to make decisions based on real-time price signals to stay competitive. Since both the short- and long-term perspectives are as contrary as they are legitimate, it is our understanding that politics needs to create more conducive conditions at home and abroad for diversification to occur. In short, business cannot change the context of globalization. Politics can.

Europeans Should Mean Business BDI intends to bridge these conflicting priorities. German Industry strongly advocates integrating the issue of “Europe as a market for others” with the issue of “other markets for Europeans”. In short, domestic policies and foreign trade issues need to be coherently understood as two sides of the same coin. This approach goes to the core of diversification: We reason that acts of economic coercion – i.e. political intervention in supply chains that affect Europeans – would simply lose their teeth when unfriendly actors know that their leverage is diminished due to diversified markets and economic risk-hedging. But to diversify, Europeans need to appreciate anew that in international politico-economic relations, mass is class. In this first paper of BDI’s series on “Europe’s Place in the World”, German Industry, therefore, proposes twelve measures that would significantly enhance the EU’s geoeconomic cloud, make the Union more resilient in uncertain times and provide it with the leverage necessary to truly make its own choices.

Strong at Home, Globally Successful With the initiative “Europe’s Place in the World”, the BDI wants to contribute to the debate about the new globalization. We want to focus on a positive agenda that addresses the hard and inconvenient imperatives mentioned above while mapping out the realm of opportunities this time of numerous challenges can provide. The Federation of German Industries believes strongly in the European project and disagrees with the notion that politicized international economic relations could strain or overwhelm a European project ostensibly unprepared for the return of geopolitics and hegemonical strive. On the contrary and according to the European Community’s initial reason d'être, Europe should find economic answers to political challenges, incentivize rules-based relations through economic heft, and take the opportunity to shape this new globalization with increased economic cloud according to Europeans’ interests.

With globalization becoming decidedly more political, recent years have seen a drift of initiatives addressing geoeconomics in general and particularly economic coercion. Many approaches focus on how to defend sovereignty or markets or even the Western order. Certainly, a sturdy rule of law structure to robustly defend economic interests is important and German Industry supports measures that aim at defending competition and an international level playing field. But, this focus also reveals an intellectual vacancy and a fundamental misunderstanding of the incentivizing power of economic relations when propped up by deliberate and astute economic policies at home. In short, we have been talking too much about sticks, and have forgotten to also pay attention to growing carrots at home.

Europeans agree on the need to diversify their trade relations. The aim should be to create long-term resilience in the value chains which in turn allows geoeconomic risks to become more manageable.

This requires improving economic framework conditions and thus creating a context that incentivizes more economic cooperation globally. This approach will enable companies to incrementally shift from

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their current reality to the shared long-term goal of diversified resilience. It is important to note that the dominant core element of international corporate strategies is the pursuit of efficiency as well as product and process standardization. It will only be then that can companies achieve competitive advantages using economies of scale.

The transformation of such corporate rationale to a changing global economy, therefore, demands support from economic policy at the national and European levels. This includes the classic policy fields, such as a European location and industry policy, the continued integration of the internal market, a modern European trade policy, and a vastly expanded European digital agenda. All these policy areas should serve Europeans to affirmatively respond to apparent and looming geopolitical challenges. A strong and internationally successful European industry will provide Europeans not only with the means to occupy a meaningful place in the world, but to create incentives for cooperation and cohabitation instead of resorting to strive and conflict. After all, a crisis is a terrible thing to waste.

Propositions for a Stronger Europe The following aspects constitute just the first installment of recommendations in BDI’s series on “Europe’s Place in the World”. As a matter of course, the following four topics have been picked for the way that they have shaped the public discourse on globalization and its challenges. More importantly, the topics and recommendations mentioned below were chosen because they interact on both axes, the domestic-international as well as the cross-subject level. “A New Momentum for Globalization”5 refers to a paper in which BDI has argued that a new form of globalization requires us to put foreign trade policy front and center. In “European Sovereignty”6 the BDI has called on policymakers to rethink the risks involved with Europe’s global integration and see to it that we balance the necessary division of labor with our interest in stable and sustainable trade relations. BDI’s position on Europe’s “Critical Raw Material Strategy”7 illustrates how the abovementioned imperatives relate to the procurement of industrial inputs that matter very much upstream of industries’ value chains. Lastly, rulesbased global trade under the roof of the WTO8 still is the ideal type from which international economic relations and an efficient division of labor should be organized globally. Therefore, the BDI’s propositions for a stronger Europe necessarily include recommendations on how to adapt the system of rulesbased global trade.

A New Globalization Globalization is the sine qua non-premise ensuring growth and prosperity worldwide. However, German Industry is aware that the benefits of globalization cannot only be measured by economic efficiency gains. Global value chains have had to adjust and change in recent years, and they must increase in quality and resilience in the future. Diversification and resilience play an important role in this

5 BDI (2023) A New Momentum for Globalization, Reducing dependencies and build economic resilience; URL: https://english.bdi.eu/publication/news/new-momentum-for-globalisation (August 16, 2023).

6 BDI (2022) Strengthening European Sovereignty, Towards open strategic autonomy; URL: https://english.bdi.eu/media/publications#/publication/news/strengthening-european-sovereignty (accessed August 16, 2023).

7 BDI (2023) European Critical Raw Materials Act (CRM Act); URL: https://english.bdi.eu/media/publications#/publication/news/european-critical-raw-materials-act (accessed August 16, 2023).

8 BDI (2022) The WTO between MC12 and MC13: Deepened Private Sector Engagement and Plurilateral Initiatives; URL: https://english.bdi.eu/publication/news/the-wto-between-mc12-and-mc13-deepened-private-sector-engagement-and-plurilateral-initiatives (accessed August 21, 2023).

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and demarcate a new form of globalization that is more resilient against shocks. Consequently, this globalization’s next installment requires a changed commitment from actors everywhere: politics, business, and civil society. 

The German government must find ways to pursue both its security as well as economic interests through an overarching and integrated strategy. Therefore, future approaches by the Federal Government should invest more resources in pressing for a beneficial foreign trade policy at the European and international levels. The diversification of international trade and investment requires central and strategic coordination from within the Federal Government and significantly intensified consideration in the German Bundestag.

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In international competition, Germany and Europe need a position of strength and an attractive aura. With ambitious public investments, research and development activities in this country must be intensified and technology transfers favored to increase Germany's and Europe's innovative strength.

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Internationally active companies need to ambitiously shape risk diversion to preventively forgo concentration risks. This should explicitly include the consideration of geostrategic risks in future decision-making processes. Companies are required to establish their standards in measuring politico-economic risks and should be prepared to limit or even withdraw their exposure when it becomes clear that risk assessments have failed. In short: businesses need to think about exit strategies and how they can cauterize geopolitical risks gone bad.

European Sovereignty When speaking about sovereignty, it is fundamentally important to note that eliminating all dependencies is impossible and undesirable; even regarding those authoritarian regimes from which Europe can plausibly expect unfriendly acts of economic coercion. Europe’s sovereignty is served best not by striving for autarky or a decoupling from delicate international counterparts. It is, however, very much in Europe’s interest to diversify target- and procurement markets. Following this premise, the German Industry consequently expects that diversification will in turn have a stabilizing effect on existing highrisk economic relationships. In a 2022 paper entitled “Strengthening European Sovereignty”, the Federation of German Industries proposed changes to several policy areas, three of which have significant relevance for strengthening Europe’s Place in the World: 

To enhance semiconductor production, closer transatlantic cooperation is a crucial prerequisite for strengthening the competitiveness of the semiconductor industry in both regions. Specifically, this requires a mutual reduction of investment barriers, the avoidance of new trade restrictions, and the coordination of export control measures. Another relevant point is the development of joint strategies, first, to secure semiconductor supply chains and, second, to develop a mutual conceptualization of "leading-edge" semiconductors to ensure that public investments (grants and tax incentives) meet the current and future needs of all industry sectors.

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In addition to increased energy security, the energy transition offers the EU the opportunity to continue to position itself as a pioneer in the development of clean technologies and to open new sales markets as a technology exporter. To consolidate Europe's technology leadership, longterm development projects should receive targeted funding today. New funding instruments and a stable regulatory framework are, therefore, crucial if Europe is to keep pace with the

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international technology race. At the same time, in addition to the accelerated introduction of key technologies, infrastructures must be built up at an early stage (e.g., a hydrogen distribution network). 

European stakeholders should expand their involvement in international standardization bodies recognizing the strategic importance of standards as a competitive factor and an instrument in global trade. Standardization requires sound funding. Government funding should always be targeted at specific standardization projects and should not be disbursed across the board. At least in the field of international standardization cooperation, the Transatlantic Trade and Technology Council (TTC) is doing important work. As part of the European Single Market, the European Standardization System (ESS) must integrate with international standardization bodies wherever possible. Future harmonization legislation must be strictly aligned with the principles of the "New Legislative Framework".

Critical Raw Materials Strategy Europe's dependence on various critical minerals such as rare earths from China is already greater than its dependency on Russian oil and natural gas has ever been. Several metal markets are highly concentrated and characterized by structural supply deficits. Protectionist measures by various states are limiting trade in raw materials. The increasing systemic competition with autocratic regimes is further increasing supply risks wherever real-economic bulk risks exist. Russia’s unlawful war of aggression against Ukraine has further highlighted the danger of autocratic regimes leveraging raw materials as a weapon in the context of geopolitical conflicts. In contrast to oil and gas, there are hardly any national (strategic) reserves of critical minerals. A supply stop would therefore have an immediate, far-reaching, and sustained impact on European industry.

Yet, critical minerals are the new oil and gas since needed for important future technologies transitioning into a climate-neutral future: rare earths and raw materials like lithium are seminal precursors in wind turbines, batteries for electric vehicles, and semiconductors. Without them, there will be no energy transition, no e-mobility, no digitization, and no Industry 4.0 - but also no infrastructure expansion and no powerful defense industry. Technological development is significantly increasing the demand for critical minerals. In the global race and competition with other countries for these strategically important raw materials, Europe risks losing out when it comes to securing reliable access. With the EU Critical Raw Materials Act (CRM Act) and its targets for significantly building and expanding European production capacities in mining, processing, and recycling of strategic raw materials, the European Commission is sending an important signal. However, central instruments for implementation are missing. 

The CRM Act is currently not sufficiently coordinated with other legislation and regulations such as taxonomy, chemicals law, the Ecodesign regulation, or supply chain due diligence obligations. The EU Commission must resolve conflicting goals together with the member states in favor of greater security of supply.

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The success of the CRM Act will mostly depend on the EU’s member states as it is their regions and municipalities that will implement the projects and ensure social acceptance. Therefore, the CRM Act must be closely intertwined with national legislation, such as the amendment of the Federal Mining Act. Local policy responses are needed to address the high energy and electricity

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costs for the extraction, processing, and recycling of strategic raw materials. So far, this challenge remains completely unanswered within the draft legislation. 

The CRM Act further lacks an urgently needed financing offensive for the development and expansion of domestic and abroad projects for the extraction, processing, or recycling of critical raw materials. In the US, mining companies and refineries of critical minerals can write off ten percent of their costs under the Inflation Reduction Act (IRA). While globally, investments in mining projects are made well before exploration begins, the CRM Act lacks a commodity investment fund. The EU therefore also needs such incentivizing instruments.

World Trade Organization The multilateral rules-based trading system is facing immense challenges, including the use of its founding principles against it to politicize negotiations, the failure to adapt to geo-economic risks, and the paralysis of the dispute settlement system. It is thus key for the European Union to step up and take a leadership role, with a focus on what is realistic to achieve and filling in and reforming major loopholes in the system. 

German industry supports wholeheartedly a pivot to focus more on and conclude more quickly plurilateral initiatives in the Organization. Europe has a leading role to play in moving these forward, particularly on e-commerce and investment facilitation, and to advocate for these to have a clear framework within the Organization. Plurilateral arrangements are also preferable in policy areas on which it has been impossible or unforeseeable to reach consensus – for example, a reform of the Agreement on Subsidies and Countervailing Measures (SCM).

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To sufficiently close the substantial regulatory gap and to effectively address market distortive practices in the area of subsidies, the European Union must submit an expanded proposal, building on the January 2020 proposal of the Trilateral Initiative, in the leadup to the 13th Ministerial Conference (MC13) on reforming the Agreement on Subsidies and Countervailing Measures (SCM). If the United States is unwilling to engage productively on the issue, the German industry supports the EU to do so with other valuable partners, such as Canada, South Korea, or Brazil.

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German industry supports the aim from MC12 of a fully functional dispute settlement system by 2024 (earlier would be ideal). We urge the EU to take the lead in current technical talks with the U.S. and other key allies. Substantive engagement must be the priority to expeditiously agree on and execute reforms that address identified concerns with the Appellate Body. In the meantime, the EU should continue to encourage other countries to join the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) and could consider a dialogue forum within the MPIA member countries as a unified coalition in dispute settlement talks.

Europe Moving Forward The world has changed and with it the context within which Europeans can and should be trying to maintain their foreign relations and external economic policy. Not just Russia’s renewed and unprovoked attack on Ukraine in February 2022 has been indicative of this diagnosis. The United States is

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turning its eye to the Pacific and expects Europe to carry more weight in strategic matters. China is a partner, a rival, and – given the many trade defense measures levied against Beijing, too often unfair – competitor. The return of the security imperative has led countries outside of the EU to securitize their trade relations; that is, they have subsumed their trade under the primacy of national security considerations and their geostrategic goals. The leveraging of economic interdependence for the attainment of such geostrategy, also known as geoeconomics, has become a regular occurrence.

Moving forward, the BDI argues that Europe has all the makings to prevail in this new context. In other words, the European house has good bones. But much work needs to be done – and soon. Therefore, the abovementioned propositions are only the first installment of analysis and recommendations to make Europe stronger economically. The EU can only be globally successful if we pursue a comprehensive economic agenda and integrate our actions on external trade relations and internal economic (pre-)conditions. Having started with three web talks between March and April 2023, “Europe’s Place in the World” is conceptualized as serial content. This position paper argues that the issues around sovereignty and foreign trade should be integrated with thinking on rules-based global economic relations and a balanced risk exposure vis-à-vis raw materials critical upstream of most – if not all – industrial value chains. Future position papers in this series will take up more issues that we as the Federation of German Industries are convinced would strengthen Europe’s Place in the World.

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Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 German Lobbyregister Number R000534 EU Transparency Register Identification Number 1771817758-48

Editorial

Matthias Krämer Head External Economic Policy T: +49 30 2028-1562 m.kraemer@bdi.eu

Dr. Nikolas Keßels Deputy Head External Economic Policy T: +49 30 2028-1518 n.kessels@bdi.eu

New Globalization

Critical Raw Materials Strategy

Cedric von der Hellen Senior Manager External Economic Policy T: +49 30 2028-1602 c.hellen@bdi.eu

Anne Lauenroth Deputy Head International Cooperation, Security, Raw Materials and Space T: +49 30 2028-1545 a.lauenroth@bdi.eu

European Sovereignty

World Trade Organization

Paul Maeser Senior Manager Research, Industrial and Economic Policy T: +49 30 2028-1545 p.maeser@bdi.eu

Katherine Tepper Senior Manager External Economic Policy Matthias Stöger Senior Manager External Economic Policy T: +32 2 792-1008 m.stoeger@bdi.eu

BDI Document number: D1793

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