EU and Chinese officials agreed a series of trade concessions covering electric cars, rare earths and tariffs that dragged them away from a damaging trade war on Friday (9 October), following two days of crisis talks.

Following two days of talks in Beijing, EU trade commissioner Maroš Šefčovič said that he and China’s commerce secretary Wang Wentao had made a “crucial first step” towards rebalancing EU-China trade relations.

Europe can point to progress on hybrid vehicles, stronger assurances over the supply of critical raw materials, and continued engagement on market access issues in China.

Hours before Šefčovič arrived, Beijing rejected an EU demand for so-called “voluntary export restrictions” on its electric vehicles (EVs). However, in a joint statement on Friday, the two sides said that they had reached an “understanding on trade in hybrid vehicles in a WTO compliant manner”, but without providing further details.

They added that further negotiations on reducing tariffs and minimum pricing deals would allow Chinese EVs to enter the EU at a lower duty rate.

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Beijing’s refusal to restrict shipments of Chinese hybrid vehicles has sharpened a dispute over Europe’s widening trade deficit, with EU Trade Commissioner Maroš Šefčovič seeking concessions during negotiations in China.

China has rejected a European Union request to restrict exports of hybrid cars to Europe, increasing the likelihood of new trade defence measures against Chinese manufacturers as negotiations continue in Beijing.

The disagreement comes during a visit by EU Trade Commissioner Maroš Šefčovič, who is seeking commitments from Chinese officials to address the bloc’s growing trade deficit and improve access for European businesses to the Chinese market.

According to accounts of the negotiations, Beijing has declined the EU’s proposal for voluntary restrictions. The European Commission is consequently considering safeguard measures that could limit hybrid vehicle imports or impose additional tariffs when shipments exceed specified thresholds.

No final decision has been announced, and the precise scope of any restrictions remains under discussion.

The dispute adds another difficulty to EU–China economic relations before European leaders meet in Brussels on 15–16 October, when the bloc’s commercial relationship with Beijing is expected to feature prominently.

Hybrid Vehicles Become New Trade Battleground

The latest confrontation follows the introduction of EU countervailing duties on battery-electric vehicles manufactured in China in October 2024.

Those measures, imposed after an investigation into Chinese state subsidies, did not cover hybrid vehicles.

Chinese manufacturers have since increased their presence in Europe’s hybrid market, offering competitively priced vehicles that combine combustion engines with electric propulsion.

The European Commission previously confirmed that its original anti-subsidy investigation applied specifically to battery-electric vehicles and could not automatically be extended to hybrids.

Consequently, any additional import restrictions must have a separate legal basis.

One option under consideration is a safeguard mechanism that would permit a defined quantity of imports before higher tariffs apply.

Such a measure would differ from the existing anti-subsidy duties, which target alleged unfair financial support provided to manufacturers.

Safeguard restrictions are designed to address injury caused by increased imports. They may also create difficulties for Brussels because measures directed at a particular product can affect suppliers from countries other than China.

Japan, South Korea and Britain could therefore face consequences depending on the structure and legal basis of any proposed restrictions.

Trade Deficit Exceeds €360 Billion

The dispute is taking place against a widening imbalance in goods trade between the European Union and China.

The EU’s annual merchandise trade deficit with Beijing has reached approximately €360 billion, equivalent to almost €1 billion per day.

European officials are particularly concerned about Chinese industrial overcapacity and the export of manufactured goods at prices that European producers struggle to match.

During the latest trade negotiations, Brussels has sought commitments concerning market access, import volumes and restrictions affecting European companies.

Chinese exports of plug-in hybrid vehicles to the EU have reportedly increased by 86 per cent over the past year, while battery-electric vehicle imports have risen by approximately 40 per cent.

This expansion has intensified pressure on European manufacturers already confronting high production costs, weak demand in some domestic markets and substantial expenditure on electrification.

EU Today reported in September that Brussels had requested voluntary restrictions on Chinese hybrid exports as part of a broader effort to rebalance commercial relations.

Beijing’s refusal has now brought the possibility of unilateral European measures closer to consideration.

Germany and France Seek Stronger Protection

Germany and France have increasingly aligned their positions on the need for stronger European instruments to address unfair competition and dependence on Chinese industrial supply chains.

France has long advocated a more interventionist European industrial policy, while German manufacturers have traditionally placed greater emphasis on preserving commercial access to China.

That calculation is changing as Chinese competitors strengthen their position in the European automotive market.

The problem is particularly sensitive for Germany, whose automotive industry depends on extensive supplier networks, skilled employment and exports.

German manufacturers also operate significant businesses in China, meaning that new European trade measures could expose them to retaliation in one of their principal overseas markets.

China has already responded to previous European restrictions with trade investigations and duties affecting agricultural products and alcoholic beverages.

Further measures against Chinese vehicle imports could therefore extend the dispute into sectors unrelated to the automotive industry.

Brussels Faces Difficult Legal Choices

The European Commission must determine whether voluntary arrangements can produce measurable reductions in Chinese exports or whether formal restrictions are required.

The legal distinction between anti-subsidy duties and safeguard measures will be particularly important.

The existing electric-vehicle tariffs were introduced following an investigation that examined subsidies and their effects on European manufacturers.

A safeguard mechanism would require a different assessment, including evidence concerning increased imports and injury to domestic producers.

It would also have to comply with the EU’s international trade obligations.

Meanwhile, Chinese manufacturers are developing production facilities within Europe, potentially reducing their exposure to tariffs imposed on imported vehicles.

EU Today’s earlier examination of the proposed hybrid tariffs considered the broader consequences of Chinese investment in European manufacturing and the bloc’s dependence on critical raw materials.

The negotiations in Beijing are expected to influence whether the Commission proceeds with formal restrictions or continues seeking a negotiated settlement.

The immediate question is whether China is prepared to offer concessions sufficiently substantial to persuade Brussels that additional tariffs are unnecessary.

With EU leaders due to discuss relations with Beijing next week, the dispute has become a test of the Commission’s willingness to use trade defence instruments against one of Europe’s largest commercial partners.

Persuading China that its €1bn daily trade surplus with the EU is not sustainable was always going to be a hard sell for EU trade commissioner Maroš Šefčovič.  

And the early signs are that Šefčovič’s two days of talks with Chinese commerce secretary Wang Wentao, which conclude on Friday (9 October), are not going to deliver the breakthrough demanded by EU leaders when they gather for a summit in Brussels next week. 

“The message around the table was clear: the need to improve access to the Chinese market, while boosting our economic security,” Šefčovič posted on X ahead of the first day of talks. 

But rhetoric aside, three months after the EU Commission set up a series of ‘work streams’ with Chinese officials, with a mandate to address the multi-layered EU-Sino trade dispute, it is hard to see much tangible progress. 

Hours before Šefčovič arrived, Beijing rejected an EU demand for so-called “voluntary export restrictions” on its electric vehicles (EVs). 

In August, data published by Schmidt Automotive Research found that 14 percent of EV sales across Europe this year were Chinese-made, up from 9.4 percent last year. 

That is despite the EU imposing additional tariffs of between 17 and 36 percent on Chinese EVs in October 2024. 

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Mexico's auto exports posted their biggest slump so far this year, data from statistics office INEGI showed on Wednesday, a decline analysts attributed to tariff policies from the US, the biggest market for the Latin American country's top industrial sector.

France and Germany are at odds over how the European Union should define European production under its emerging industrial preference rules, with Paris favouring a narrow EU-only system while Berlin wants trusted trade partners including Britain, Canada and Japan to remain eligible.

France and Germany have reopened a fundamental dispute over the European Union’s “Made in Europe” industrial policy, this time over the question that will determine how far-reaching the programme eventually becomes: which countries should qualify as European suppliers.

The disagreement centres on the Industrial Accelerator Act, under which the EU wants to use subsidies and public procurement to strengthen domestic manufacturing and reduce dependence on Chinese production in strategic sectors.

France is pressing for a restrictive definition centred on manufacturing within the EU’s 27 member states. Germany favours a broader approach that could extend preferential treatment to countries with close trade agreements or reciprocal industrial relationships with the Union.

That could bring Britain, Canada, Japan and potentially Turkey within the system rather than treating their products in the same way as goods from China and other outside suppliers, according to reporting on the Franco-German dispute.

The dispute has important consequences because “Made in Europe” is intended to influence how large amounts of public money are spent.

The Industrial Accelerator Act is designed to introduce European-content requirements into selected subsidy schemes and public contracts in sectors including electric vehicles, batteries and clean technology. The underlying objective is to ensure that European public spending supports European industrial capacity rather than increasing dependence on imported technologies.

EU Today has followed the argument since the proposals began taking shape. In February, it reported that the Commission was preparing local-content rules for strategic technologies. The debate has since moved from whether such preferences should exist to how broadly “European” should be interpreted.

Paris wants the benefits concentrated inside the EU. The French position reflects concern that allowing manufacturers in countries with EU trade agreements to qualify could dilute the purpose of the scheme. If access is too broad, the argument runs, public procurement may do little to increase production or employment within the Union itself.

Germany is more cautious about creating a closed EU system. Its manufacturing economy is embedded in supply chains extending across Europe and into neighbouring markets, including Britain and Turkey. Berlin has therefore argued for a “made with EU” approach under which trusted trade partners could participate if their markets also provide reciprocal access to European industry.

That disagreement has become increasingly important for Britain. British manufacturers, particularly in the automotive sector, remain closely integrated into continental production networks despite Brexit.

A strict EU27 definition could therefore produce situations in which components made in Britain count as foreign content even when they are incorporated into vehicles assembled inside the Union.

France and Germany had appeared to be moving towards a broader industrial compromise last week. Their negotiations combined the “Made in Europe” question with disagreements over vehicle-emission rules and the future treatment of combustion-engine technology. The latest discussions show that one of the hardest questions remains unresolved.

There is also concern among some EU governments that an overly broad system could create routes for companies from countries such as China to obtain favourable treatment indirectly.

The argument mirrors a wider change in EU economic policy. Supply disruptions, Russia’s war against Ukraine and China’s dominance of several strategic manufacturing sectors have pushed Brussels towards a more interventionist approach.

France sees public purchasing power as an instrument for rebuilding production specifically within the Union. Germany is seeking greater flexibility for supply chains involving trusted partners and appears more concerned about the trade consequences of drawing the boundary too tightly.

For Brussels, the problem is now practical rather than theoretical. The narrower the definition, the more industrial support remains inside the EU; the broader it becomes, the easier it is to preserve existing supply chains and relations with allies.

Production: By Europod, in co-production with Sphera Network.

EUobserver is proud to have an editorial partnership with Europod to co-publish the podcast series “Briefed” hosted by Léa Marchal. The podcast is available on all major platforms.

Find the full transcript below: 

Chinese carmakers are taking an increasing share of the European car market, particularly when it comes to electric vehicles. Why are European carmakers now opening their factories to their Chinese competitors?

Until recently, the main concern in Europe was Chinese-made electric vehicles being imported into the EU. That’s why, two years ago, the EU imposed hefty tariffs on Chinese electric cars.

But Chinese manufacturers have found another way into the European market: they are setting up production here. Some are building factories of their own. Others are entering partnerships with European carmakers and using their existing production sites.

That’s the case with Stellantis and Chinese manufacturer Leapmotor. And now Dongfeng is also negotiating to produce cars at the French plant of Rennes La Janais. Because by moving production to Europe, Chinese manufacturers may be losing one of their main advantages, which is cheap labour.

But low labour costs are only one part of their competitive edge.

Chinese manufacturers also continue to benefit from state support. And setting up production in Europe doesn’t necessarily mean building brand-new factories.

In many cases, Chinese companies are looking to partner with European manufacturers and use factories that are already there — factories that are no longer operating at full capacity. That means they can save significantly on investment costs. And they can also rely on their European partners’ existing sales and distribution networks.

So how big is this Chinese presence in Europe becoming? For 2028, there are already 12 projects involving Chinese carmakers setting up production in Europe. Several are in Spain, with others in France, Belgium, Slovakia, Hungary, Sweden and Austria.

Now, why would European manufacturers allow their Chinese competitors to produce cars in their own factories? Part of the answer is that European carmakers are struggling to keep up in electric vehicles sells. And that is contributing to factory closures and job losses.

European manufacturers have to meet EU targets on average CO2 emissions each year. And producing more electric vehicles is necessary to meet those requirements.

So partnerships with Chinese manufacturers can serve two purposes: they can help European companies fulfilling their green cars objectives, while also keeping existing factories and jobs running.

Though there is a longer-term risk for European manufacturers. The more Chinese companies establish themselves in Europe, the more competitive pressure they could put on European brands — potentially even leading to takeovers. That has happened before: Volvo Cars, for example, was acquired by Chinese group Geely in 2010. 

In Germany, carmakers are for now refusing to open the doors of their production sites to the Chinese. But they do have partnerships with Chinese companies to produce vehicles in China, where they can benefit from lower production costs. That explains why they were very much opposed to imposing tariffs on Chinese electric vehicles.

But the situation is now changing. Volkswagen closed its Dresden factory last year, and other German plants are also facing closure risks. Germany’s car industry is therefore increasingly joining calls for stronger protection against Chinese competition.

And that brings us back to the Franco-German paper that is circulating in Brussels, which calls for measures to restrict Chinese access to the European market.

Because this debate goes well beyond cars. The EU is increasingly concerned about Chinese competition and dependence in a range of strategic industries. This will be discussed next week, when EU leaders meet in Brussels.

The European Commission could also present a new so-called “diversification” tool, either at the summit or around it. One possibility would be to require companies not to rely exclusively on China for certain critical materials. Something which could trigger what we call a trade war. I’ll be following that very closely!

France and Germany have proposed giving the European Commission powers to respond within days to serious trade distortions, including the possibility of restricting access to the EU single market. The initiative comes as European concern grows over Chinese subsidies, industrial overcapacity and dependence on critical imports.

French President Emmanuel Macron and German Chancellor Friedrich Merz have called for a new European Union trade instrument capable of acting rapidly against countries whose economic practices cause serious disruption to the European market.

In a joint initiative sent to European Commission President Ursula von der Leyen on Monday, the two governments proposed strengthening the EU’s ability to respond to what they describe as systemic market distortions, including dumping, widespread subsidies and restrictions affecting access to critical supplies.

The Franco-German proposal does not formally identify China as its target. However, many of the practices it describes correspond directly to long-standing European concerns over Chinese industrial policy, including excess manufacturing capacity, state support and restrictions on exports of critical minerals.

The initiative represents a further development in a harder European approach towards Beijing. EU Today reported last week that China had warned it would respond if the EU introduced new restrictions against Chinese companies or products.

Macron and Merz are proposing two additional instruments.

The first would be intended to reduce European companies’ dependence on single suppliers for strategically important products and raw materials. The second would allow the EU to restrict access to its internal market when a third country uses political or economic measures that seriously undermine fair competition.

Under the proposal, the Commission could initiate countermeasures unless a qualified majority of EU governments voted to block them. That would reverse the normal political dynamic in which Brussels must first secure sufficient support before acting.

German officials have argued that the EU needs powers comparable in effect to the United States’ Section 301 trade measures or China’s ability to restrict exports of critical raw materials.

The Commission has welcomed the Franco-German intervention as a contribution to its work on economic security and global trade imbalances. Any new instrument would, however, require legislation and approval by both EU governments and the European Parliament before it could be used.

The proposal comes amid growing concern in both Paris and Berlin over the effect of subsidised Chinese production on European manufacturers.

Germany’s position is particularly significant. Berlin has traditionally been more cautious than Paris about measures that could restrict trade with China, reflecting the importance of the Chinese market to German carmakers, engineering companies and chemical producers.

That position has shifted as German industry faces increased competition from Chinese electric vehicles, machinery and other manufactured goods.

EU Today has previously examined the emerging Franco-German alignment on tougher China trade defences and demands from German manufacturers for broader European action rather than product-by-product investigations.

The new proposals go considerably further by seeking a mechanism capable of dealing with entire sectors and acting much more quickly than conventional anti-dumping proceedings.

Chemicals, PET plastics and hybrid vehicles are among sectors identified in the Franco-German document as areas where additional action may be required.

The timing is also significant. EU leaders are due to discuss trade relations with China at their summit in Brussels on 15–16 October, while Trade Commissioner Maroš Šefčovič is expected to hold talks with Chinese officials beforehand.

The Commission is already attempting to balance two objectives: maintaining Europe’s access to the Chinese market while reducing strategic dependencies that could be used as political leverage.

The Franco-German plan would give Brussels another instrument at the more coercive end of that policy. Its eventual importance will depend on whether governments agree to create it and how readily they would permit the Commission to use it against a major trading partner.

Beijing has opened an anti-dumping investigation into a chemical imported from the European Union days before EU Trade Commissioner Maroš Šefčovič travels to China for talks covering trade imbalances, market access and strategic raw materials.

China has opened a new anti-dumping investigation into imports from the European Union less than a week before EU Trade Commissioner Maroš Šefčovič is due in Beijing for talks on the increasingly difficult trade relationship between the two sides.

China’s Ministry of Commerce announced on Saturday, 3 October, that it was beginning an investigation into p-nitrotoluene, also known as 4-nitrotoluene, imported from the EU.

According to the official notice opening the investigation, the case follows an application submitted on 14 September by Chinese producers Jiangsu Huaihe Chemical and Hubei Dongfang Chemical. The investigation will examine alleged dumping between 1 July 2025 and 30 June 2026, while the assessment of possible damage to Chinese industry will cover January 2022 to June 2026.

P-nitrotoluene is used in the production of dyes, pharmaceuticals, pesticides, pigments and other chemical products.

In isolation, the investigation concerns a relatively specialised industrial product. Its timing, however, places it inside a much wider argument over the future of EU-China trade.

Šefčovič is expected in China on 8 and 9 October for the second high-level meeting under the EU-China trade and investment consultation mechanism established earlier this year.

The European Commission confirmed in September that the meeting would address Chinese exports to the EU, European access to the Chinese market and restrictions affecting rare-earth supplies. Brussels said it expected the October talks to produce the first concrete results from work undertaken since the mechanism was established. The Commission outlined the agenda following a September call between Šefčovič and Chinese Commerce Minister Wang Wentao.

EU Today reported in September that Šefčovič had warned China that the EU could consider tougher measures if the negotiations failed to produce tangible progress by October.

The deadline followed talks between Šefčovič and Wang in Brussels in June. At the time, the two sides agreed to establish working groups dealing with trade and investment balances, export controls, intellectual property and World Trade Organisation reform.

EU Today examined those negotiations in detail as Brussels sought progress on rare earths, market access and the widening trade imbalance.

The numbers remain a central part of the European argument.

According to Eurostat’s figures for EU-China trade in 2025, the EU imported €559.4 billion in goods from China while exporting €199.6 billion, leaving a trade deficit of €359.8 billion. EU exports to China fell by 6.5 per cent compared with 2024, while imports increased by 6.4 per cent.

Brussels argues that the imbalance cannot be viewed separately from questions of industrial subsidies, excess manufacturing capacity and barriers encountered by European companies seeking access to the Chinese market.

Beijing rejects the suggestion that the growth of Chinese exports is principally the result of unfair state support and has criticised the EU’s expanding use of trade-defence instruments.

The confrontation now covers a growing range of industries.

The EU has imposed additional duties on Chinese electric vehicles following an anti-subsidy investigation, while disputes have extended to medical devices, public procurement and agricultural products. China, meanwhile, has launched investigations affecting European products including brandy, pork, dairy goods and chemicals.

Rare earths have become particularly important.

European industry remains heavily dependent on Chinese supplies and processing capacity for materials used in permanent magnets, electric vehicles, wind turbines, electronics and defence equipment.

Eurostat reported in June that China supplied 46.8 per cent of EU rare-earth imports by weight in 2025. The concentration is greater in some processing stages and manufactured components.

EU Today has followed the issue closely, including the Commission’s preparations for possible renewed Chinese rare-earth restrictions and the EU Today Research Desk’s assessment of Europe’s exposure to Chinese rare-earth supply chains.

Following the June negotiations, Šefčovič said China had given assurances that export controls on rare earths and permanent magnets should not interrupt European supply chains. He nevertheless sought improvements to the licensing system faced by EU companies. The Commissioner said at the time that Beijing would be expected to demonstrate tangible progress by October.

That point has now arrived.

Neither Brussels nor Beijing has indicated that the broader commercial relationship is heading towards disengagement. China remains the EU’s largest source of imported goods and the European market remains commercially important to Chinese exporters.

But both sides are increasingly prepared to use trade-defence measures when negotiations fail to resolve disputes.

Saturday’s anti-dumping investigation consequently adds another issue to Šefčovič’s agenda days before he arrives in Beijing — and provides an early indication of the atmosphere surrounding the October talks.

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The post The China factor behind the Iran war appeared first on Asia Times.

China has warned that it will respond if the European Union introduces new trade restrictions targeting Chinese companies or products, as France and Germany push for stronger European instruments to address what they regard as unfair commercial practices.

China’s Ministry of Commerce issued the warning after reports that several EU governments were discussing a mechanism modelled partly on Section 301 of US trade law, which allows Washington to investigate foreign trade practices and impose countermeasures.

Beijing described such an approach as protectionist and unilateral and warned that it could damage continuing negotiations between China and the EU.

“If the European side insists on introducing discriminatory restrictive measures against Chinese companies or products,” the ministry said, China would “resolutely respond” to defend the interests of its industries.

The warning comes as Europe’s trade relationship with China is moving further up the political agenda.

According to the European Commission’s latest EU-China trade figures, EU exports to China were worth €199.5 billion in 2025 while imports reached €559.5 billion.

The goods deficit stood at €359.9 billion, compared with €312.2 billion in 2024.

China remained the EU’s largest source of goods imports and its fourth-largest export market.

Brussels argues that the scale of the imbalance is connected not only to competitiveness but also to state support, market-access restrictions and other structural differences between the two economies.

China disputes that assessment and has repeatedly accused the EU of using industrial and security arguments to justify protectionism.

The argument is already visible in several industries.

The EU imposed countervailing duties on Chinese battery electric vehicles after an investigation concluded that state subsidies were giving Chinese manufacturers an unfair advantage in the European market.

Brussels has subsequently widened its attention to other parts of the automotive industry. Earlier this month, EU Today reported that the EU was considering restrictions affecting Chinese hybrid cars as policymakers looked for ways to contain the growing trade imbalance.

The automotive dispute is important because Europe is simultaneously trying to attract Chinese manufacturing investment.

France and Spain addressed that question during President Emmanuel Macron’s state visit to Madrid.

Macron and Spanish Prime Minister Pedro Sánchez agreed on the need for greater European unity in responding to Chinese competition. They also discussed whether Chinese investors entering strategically important European industries should be required to provide stronger commitments on issues such as technology transfer.

Macron said that companies on both sides of the Pyrenees needed protection when they faced unfair competition and argued that “the only response that works is European.”

France has generally favoured stronger European trade defences.

Germany has traditionally approached the issue more cautiously because major German manufacturers have substantial commercial exposure to China. Increasing competition from Chinese producers, particularly in industrial sectors where German companies were once dominant, has altered the debate.

Reports that Berlin and Paris are now working together on a stronger trade instrument therefore suggest a potentially important shift.

The two countries are said to be considering a European mechanism inspired by the American Section 301 process, although no final proposal has yet been adopted by the European Commission.

EU trade law already provides several instruments.

Brussels can impose anti-dumping or anti-subsidy duties following investigations, use the Foreign Subsidies Regulation to examine state-backed investment and procurement, and deploy the Anti-Coercion Instrument where another country uses economic pressure against the EU or a member state.

The discussion now concerns whether those instruments are sufficient when governments believe a problem extends across industries rather than affecting an individual product.

The debate comes only weeks after EU Today reported that Brussels was preparing additional pressure on Chinese hybrid-car imports, demonstrating how quickly EU-China trade disputes are expanding beyond the original electric-vehicle case.

At the same time, Brussels and Beijing have established a Trade and Investment Consultations mechanism, with workstreams covering trade balances, export controls, intellectual property and World Trade Organisation reform.

China’s Commerce Ministry has warned that introducing tougher measures while those talks continue would damage trust.

That leaves the EU facing two parallel choices: continue negotiations intended to narrow the trade dispute while also developing stronger instruments in case those negotiations fail.

France and Germany are increasingly arguing that Europe needs greater leverage.

Beijing’s response is that using that leverage against Chinese companies would bring countermeasures.

The next stage will depend on whether the Franco-German proposal develops into a formal EU initiative. If it does, the dispute will move beyond duties on particular products towards a broader argument over how Europe intends to manage its economic relationship with China.

The European Union is embarking on diplomatic hand-to-hand combat with China in an effort to rework its trade with Beijing and show it is not a geopolitical weakling. Using unusually direct terms, the EU has given China a mid-October deadline to provide ways it will reduce its massive trade advantage over Europe. If not, the […]

The post A rickety Europe tries to stand up to China appeared first on Asia Times.

After years of European governments condemning Israel’s illegal occupation but maintaining extensive economic relations, some economic consequences are reportedly now forthcoming.

This comes amid wider scrutiny of Israel’s treatment of Palestinians, including systemic discrimination, unlawful occupation and genocide in Gaza.

On 8 September, twelve governments announced moves towards restricting trade with illegal Israeli settlements. This is a limited but welcome response to grassroots pressure.

It also raises a question: where does the economy of an illegal Israeli settlement end?

Most emerging measures follow economic relationships towards illegal Israeli settlements: do not buy goods produced there, invest there or provide services that enable their construction. 

Norway’s proposed legislation is seemingly comprehensive, covering property purchases and services connected to construction and property transactions.

The UK has also announced a ban on advertising property in illegal Israeli settlements, after such property had been advertised at a London real-estate event.

But this all still largely considers illegal Israeli settlements within their territorial bounds.

The problem is treating a spatial category as though the economic relationships producing it share the same boundary. We all know the world does not work like that.

Kinnula, a municipality in central Finland, is now facing this reality: when money from the illegal settlement economy moves into public land in Europe. It is a small case, but it makes the problem unusually visible.

In August, Kinnula council voted 10–3 in favour of a €4m resort development by Israeli property company Dror Bonim Atid, before councillors had been informed of the company’s promotion of projects in illegal Israeli settlements.

The municipality paused the process while requesting a background report on the company from Israel. Its municipal manager told Finnish news media that nothing had yet emerged that required closer examination.

However, illegal Israeli settlements are not illicit enterprises from the perspective of Israel. Their expansion is enabled through Israeli state institutions.

A background check sought from Israel is therefore absurd. A more obvious background check reveals something else.

On its own website, Dror Bonim Atid presents its Finnish development alongside a development in Efrat, an illegal Israeli settlement in the occupied West Bank, as well as a development in Dror-Hiran in the Negev. The latter is being built on land where Umm al-Hiran stood until November 2024, when the Bedouin village was completely demolished and its community forcibly displaced.

One company website therefore takes us from an illegal Israeli settlement, through the site of a demolished Bedouin village, to holiday accommodation beside a Finnish lake.

Finland’s ministry of defence must still approve the acquisition because the purchaser comes from outside the EU and EEA. But that system principally examines questions such as national security and defence.

Involvement in illegal Israeli settlements does not fit neatly into the categories through which the transaction is being examined.

Kinnula exposes a gap in the emerging European restrictions on trade with illegal Israeli settlements. Those restrictions follow economic relationships from Europe towards the settlements.

Here the relationship points the other way. What happens when the economies of illegal Israeli settlements come to Europe to acquire public assets, invest and make money here?

This may be a relatively new question for European policymakers. For Palestinian civil society, it is not. Their call for Boycott, Divestment and Sanctions (BDS) was issued in 2005, drawing in turn on a much longer history of Palestinian boycott and economic resistance.

The movement has spent years developing corporate-complicity criteria and strategies for divestment and exclusion from contracts, moving beyond asking where a product came from to examining the companies with which institutions maintain economic relationships.

You could be forgiven for rolling your eyes as European policy discovers these questions inch by inch.

Palestinians have spent generations analysing the economic relationships through which occupation is sustained. BDS has spent more than twenty years turning that knowledge into practical strategies for institutions elsewhere.

So, when a Finnish municipality is deciding whether to sell public land to a company openly involved in illegal occupation, there is clear guidance from Palestinian civil society on how to respond.

There is also now the fact that Europe accepts that it should not economically support illegal Israeli settlements, meaning it should also accept that companies involved in illegal settlements should not be able to come to Europe for public land, contracts and investment.

The world of trade is led by optimists, and the data shows the resilience of the strategies these stewards of trade have developed and deployed. 

A copper ingot cast somewhere in inland Sardinia during the Bronze Age might, centuries later, turn up in a Scottish tomb or a village in southern Sweden. That is the striking picture drawn by Serena Sabatini, an archaeologist at the University of Gothenburg, in a new paper that pulls together decades of isotopic analyses to […]

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Trade Commissioner Maroš Šefčovič and MEP Dirk Gotink (EPP, Netherlands) Photographer: Mathieu Cugnot © European Union

The European Parliament has approved a major overhaul of the EU’s customs system, tightening requirements on e-commerce platforms, introducing a new handling fee for goods ordered from outside the bloc and creating a central EU customs authority.

“This is the biggest reform of European customs since 1968, supporting trade and the enforcement of EU rules,” said MEP Dirk Gotink, (EPP, Netherlands) who steered the legislation through Parliament. Gotink said European customs authorities had been overwhelmed by a “tsunami of Chinese parcels” and that the reform would give customs officers stronger tools to enforce EU standards.

Under the new rules, e-commerce platforms and sellers shipping goods directly from non-EU countries to European consumers will be treated as importers. That will make them responsible for providing customs data, handling applicable charges and ensuring products comply with EU law.

The reform also introduces an EU-wide handling fee on goods ordered directly from non-EU countries, with member states required to begin collecting it no later than 1 November, 2026. The European Commission will determine the amount and review it every two years.

Companies that repeatedly breach EU customs rules could face fines ranging from at least 1% to as much as 6% of the value of goods they imported into the EU during the previous 12 months.

The overhaul will also establish an EU Customs Data Hub, designed to replace at least 111 existing customs IT systems. A new EU Customs Authority, based in Lille, France, will manage the hub and coordinate customs cooperation and risk management across the EU.

The Council has already given the reform its final formal approval, making Parliament’s vote the final step in the legislative procedure.

European Commission President Ursula von der Leyen during her speech in 2025 Photographer: Dati Bendo © European Union, 2025

Ursula von der Leyen is expected to make the case for a more independent and resilient Europe in her State of the European Union address on Wednesday (16 September). But analysts and political groups in the European Parliament are demanding something more concrete: evidence that the Commission can turn its expanding ambitions into results Europeans can see.

The State of the European Union address, commonly known in Brussels as the “SOTEU”, is the Commission president’s annual speech to Parliament setting out priorities for the year ahead. Modeled in part on the US president’s State of the Union address to Congress, the EU version began in 2010 under then Commission president José Manuel Barroso. Von der Leyen will deliver this year’s address at 9:00 tomorrow morning (16 September).

The speech comes as Europe is confronted with an ongoing war in Ukraine, a fragmenting global trading system and the challenge of strengthening defence while reviving competitiveness and financing the green transition. At home, von der Leyen must reconcile political groups that broadly agree on the need for a stronger Europe but differ over what that means.

For Manfred Weber, chairman of von der Leyen’s centre-right European People’s Party group, the focus should be on voters’ economic and security concerns.

“Europe’s priorities must reflect people’s concerns: jobs, the cost of living and economic security,” Weber said. He called for a stronger economy and well-paid jobs, tighter control of Europe’s borders, leadership on AI, continued support for Ukraine and “a strong European defence pillar”.

On the centre-left, Iratxe García Pérez, president of the Socialists and Democrats group, argues that the Commission has relied too heavily on deregulation.

“Europe needs more than announcements,” García Pérez said. “It needs concrete policies backed by the necessary resources.” The S&D wants greater emphasis on affordable food, housing and energy, quality jobs and climate action, alongside European sovereignty in defence and digital technologies.

Renew Europe is also making delivery the benchmark, calling on von der Leyen to present “a credible plan turning European ambition into visible results” and framing the choice as one between united European action and fragmentation.

Analysts at the European Policy Centre see the same challenge extending to Europe’s position in the world.

“Von der Leyen will tell us that the EU is forging new partnerships around the globe,” said Almut Möller, the EPC’s director for European and Global Affairs. Canadian Prime Minister Mark Carney’s attendance will reinforce the geopolitical dimension of the speech.

But strategic autonomy goes beyond defence and trade. Georg Riekeles, the EPC’s head of political economy, identifies financial dependence as an overlooked vulnerability. With the international financial system becoming less stable, Europe cannot assume Washington and the US Federal Reserve will play the stabilising role they did in previous crises. Von der Leyen “must therefore address financial sovereignty as a core element of European security”, he argues.

Technology poses another test. Elizabeth Kuiper, the EPC’s head of health and societal resilience, says von der Leyen should “reject the trade-off between competitiveness, technological progress, and the EU’s social model”, particularly as AI affects employment, income security and social cohesion.

Climate policy presents a similar collision between ambition and resources. Stefan Šipka, the EPC’s head of sustainable prosperity, argues that Europe needs “a robust delivery mindset, no more strategies” as it tries to combine defence, decarbonisation and economic security.

The common thread is delivery. Von der Leyen has no shortage of strategic objectives. The harder task on Wednesday will be explaining how they fit together, how Europe will finance them and what takes priority when they conflict.

For EPC policy analyst Eric Maurice, von der Leyen “must provide strategic focus and political clarity”.

“As the midterm in her second term approaches,” Maurice said, “it is time for von der Leyen to present a vision and deliver.”

On 11 September, the European Commission has put forward its proposals to the Council for the signature and conclusion of Free Trade Agreement (FTA) between the European Union and India, seeking authorization for its signature and conclusion. If authorized by the Council, this will be the largest trade agreement ever concluded by both the EU and India.

Once adopted and entered into force, the agreement will improve market access, reduce tariffs, tackle unnecessary barriers to trade, as well as provide predictable rules for trade and investment between the EU and India. The EU and India already trade over €180 billion worth of goods and services per year, supporting close to 800,000 EU jobs. This deal will eliminate or reduce tariffs on 96% of EU goods exports to India. Overall, the tariff reductions will save around €4 billion per year in duties on European products. It will make it easier for European companies to access the Indian market and compete on a more level playing field, while it will ensure consumers can benefit from increased choices and more competitive prices.

The proposal put forward today represents a key step towards ensuring that consumers and businesses can start reaping the benefits of this deal as soon as possible. This is in line with the fast-track procedure laid out by Commissioner for Trade and Economic Security, Maroš Šefčovič earlier this year. The procedure aims at speeding up the implementation of FTA's, which is crucial at a time of geopolitical uncertainty and growing pressure on the global trading system.

The EU-India FTA reflects the EU's commitment to strengthen economic ties with key partners in the Indo-Pacific region. With its proposals, the Commission is seeking Council's approval to sign the agreements which will then require European Parliament's consent, before conclusion and entry into force. The Indian authorities are in parallel going through their own internal ratification procedures.

For more information

Proposal for a Council Decision on the signing of the Free Trade Agreement between the European Union and the Republic of India

Proposal for a Council Decision on the conclusion of the Free Trade Agreement between the European Union and the Republic of India

Questions and answers on the EU-India Free Trade Agreement

From illicit production to smuggling, the illicit tobacco trade continues to pose a serious problem for the EU, as it negatively impacts its finances, public health and security, according to a new report by the European Court of Auditors (ECA). Although the European Commission and EU countries have made efforts to combat this global criminal phenomenon, their action is not robust enough. Illicit production across the EU is increasing, smuggling methods are getting more sophisticated, and new tobacco products are on the rise. Against this backdrop, the auditors criticise poor cross-country cooperation, which suffers from persistent gaps and lacks a concerted EU-wide approach.

The illicit tobacco trade has changed significantly in recent years. Organised crime groups have strategically relocated production from Ukraine to the EU in order to shorten supply chains and access consumers more directly. Although smuggling remains a problem, illicit manufacturing sites have been detected in almost all EU countries, and illicit production has grown across the EU. For instance, in a large-scale illicit cigarette production factory in Belgium, each machine was capable of producing around a million cigarettes per hour. In the largest illicit cigarette factory dismantled in Spain, three million packets of counterfeit cigarettes were seized, i.e. 56 times the height of Mount Everest if the cigarettes were stacked horizontally.

“The EU cannot afford to let its fight against the scourge of illicit tobacco go up in smoke,” said Petri Sarvamaa, the ECA Member leading the audit. “If we are serious about safeguarding citizens’ health, wallets and security, the Commission and member states must up their game to fight criminal activity head-on.”

The illicit tobacco trade deprives EU and member state budgets of €13 billion a year, according to the Commission’s estimate. However, this figure should be treated with caution, as it is based on external studies. The fact remains that the Commission lacks a reliable and independent EU-wide estimate of the illicit tobacco market, its structure and its economic impact, e.g. in terms of lost tax revenues. Such data, however, are crucial for determining the magnitude of the problem and designing an effective response. As it stands, the Commission’s reporting is largely based on seizures, and so does not provide a full picture of the situation.

Over the past decade, the EU and its member states have taken measures to combat the illicit tobacco trade. However, EU law is not harmonised, and member states’ efforts are uneven. For example, key production inputs such as raw tobacco and production machinery, and new types of products such as heated tobacco products and liquids for e-cigarettes, are not treated in the same way across the EU. At the same time, the EU regulatory framework gives member states a free hand in choosing counter-measures, thus leading to enforcement gaps that organised crime groups can exploit. In particular, as national control systems and enforcement approaches differ, such as in the definition of offences and the severity of penalties, this can encourage criminal activities to relocate to laxer jurisdictions. Furthermore, EU countries are inconsistent in the way they exchange information.

In the EU, responsibility for combating the illicit tobacco trade is shared between several stakeholders. However, no single entity has a clear coordinating role, meaning that initiatives are fragmented. The auditors thus call on the Commission to assume a more active role in combating the illicit trade in tobacco products.

Background information

Although overall tobacco consumption has continued to fall, the quantity of illicit tobacco products in the EU has risen in recent years. In 2023, the Commission estimated that the quantity of illicit tobacco products was 8.8 % of total cigarette consumption. Excluding cigarettes, the illicit tobacco market amounts to nearly 21 000 tonnes in the EU. According to estimates, these new products make up 13 % of the market value of tobacco products sold in the EU, and attract younger consumers.

Illicit tobacco products are very attractive for organised crime groups due to their high profitability and comparatively low risk (penalties have traditionally been light and detection rates low). Such illegal activity not only provides a significant source of income for criminals but, by offering cheaper tobacco products, also undermines efforts to reduce tobacco consumption. Ultimately, it leads to losses in terms of customs duties, value-added tax and national excise duties.

The audit assesses the effectiveness of the action taken by the Commission and the member states. The auditors carried out field visits in Belgium, Spain, Poland and Romania, and include examples of illicit manufacturing sites in their report. ECA special report 23/2026 “Combating the illicit trade in tobacco in the EU: Fragmented efforts and persistent gaps” is available in 24 EU languages on the ECA website.

Pakistan and Kyrgyzstan also signed an agreement on scientific and technical cooperation.

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