The EU-US Task Force on Energy Security met for the 11th time on October 31, 2023, convened by co-chairs Amos Hochstein, Special Presidential Coordinator for Global Infrastructure and Energy Security, and Björn Seibert, Head of Cabinet of European Commission President Ursula von der Leyen, with the participation of Sarah Ladislaw, Special Assistant to the President and Senior Director for Climate and Energy at the US National Security Council, and Ditte Juul Jørgensen, European Commission Director-General for Energy.
The discussion focused on reviewing the diversification of Europe’s natural gas supply sources and the growing liquefied natural gas (LNG) trade between the United States and Europe, with the US now by far the largest supplier of LNG to Europe. The sides also discussed AggregateEU, Europe’s gas demand aggregation and joint purchasing mechanism, which has had success this year enabling European companies to improve their security of supply and negotiate competitive prices.
The discussion also touched on the EU’s concrete steps to further reduce gas demand, including through energy efficiency measures and policy support, expanded heat pump and smart thermostats deployment, increased use of renewable energy, and structural changes in Europe’s industrial demand patterns.
The sides also discussed how the EU has responded collectively and effectively to Russia’s aggression in Ukraine and weaponisation of Europe’s energy supplies, by accelerating the clean energy transition, diversifying supplies, and saving energy. The EU drastically reduced its dependence on Russian fossil fuels, including by: phasing out coal imports; reducing oil imports by 90 percent; and reducing gas imports from 155 billion cubic meters (bcm) in 2021 to around 80 bcm in 2022 and to an estimated 40 to 45 bcm in 2023.
The EU-US Task Force on Energy Security builds on long-standing transatlantic cooperation. It is an essential tool in our transatlantic cooperation to ensure energy security in Europe. As reconfirmed by leaders at the EU-US summit on October 20, 2023, the Task Force will continue to advance the energy transition to climate neutrality and bolster energy security. The Task Force also affirmed its commitment to monitor the energy security situation and reconvene when necessary.
 

Compliments of the European Commission.
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The Commission welcomes today’s agreement by G7 leaders on International Guiding Principles on Artificial Intelligence (AI) and a voluntary Code of Conduct for AI developers under the Hiroshima AI process. These principles and the voluntary Code of Conduct will complement, at international level, the legally binding rules that the EU co-legislators are currently finalising under the EU AI Act. President of the European Commission, Ursula von der Leyen, was among those who subscribed to the G7 leaders’ statement issued by the 2023 Japan G7 presidency.
President von der Leyen, said: “The potential benefits of Artificial Intelligence for citizens and the economy are huge. However, the acceleration in the capacity of AI also brings new challenges. Already a regulatory frontrunner with the AI Act, the EU is also contributing to AI guardrails and governance at global level. I am pleased to welcome the G7 international Guiding Principles and the voluntary Code of Conduct, reflecting EU values to promote trustworthy AI. I call on AI developers to sign and implement this Code of Conduct as soon as possible.”
Ensuring safety and trustworthiness of the technology
The eleven Guiding Principles adopted by the leaders of the seven countries and the EU, which make up the G7, provide guidance for organisations developing, deploying and using advanced AI systems, such as foundation models and generative AI, to promote safety and trustworthiness of the technology. They include commitments to mitigate risks and misuse and identify vulnerabilities, to encourage responsible information sharing, reporting of incidents, and investment in cybersecurity as well as a labelling system to enable users to identify AI-generated content.
Informed by the results of a stakeholder survey, these principles have been jointly developed by the EU with the other G7 members, under the Hiroshima Artificial Intelligence Process. The Guiding Principles have in turn served as the basis to compile a Code of Conduct, which will provide detailed and practical guidance for organisations developing AI. The voluntary Code of Conduct will also promote responsible governance of AI globally. Both documents will be reviewed and updated as necessary, including through inclusive multistakeholder consultations, to ensure they remain fit for purpose and responsive to this rapidly evolving technology. The G7 leaders have called on organisations developing advanced AI systems to commit to the application of the International Code of Conduct. The first signatories will be announced in the near future.
Background
The G7 Hiroshima Artificial Intelligence Process was established at the G7 Summit on 19 May 2023 to promote guardrails for advanced AI systems on a global level. The initiative is part of a wider range of international discussions on guardrails for AI, including at the OECD, the Global Partnership on Artificial Intelligence (GPAI) and in the context of the EU-U.S. Trade and Technology Council and the EU’s Digital Partnerships.
Since first announcing its intention to work on a Code of Conduct at the TTC Ministerial of 31 May 2023, the European Commission actively worked with key international partners in the G7 to develop the principles and the Code of Conduct on AI. These international commitments are consistent with the legally binding rules currently being negotiated as part of the more comprehensive Artificial Intelligence Act (EU AI Act), which will apply in the EU.
The proposal for the EU AI Act will guarantee the safety and fundamental rights of people and businesses, while strengthening AI uptake, investment and innovation across the EU. The AI Act will provide risk-based, legally binding rules for AI systems that are placed on the market or put into service in the Union market.
 
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Remarks by the First Deputy Managing Director, Gita Gopinath at the Ninth IMF-WB-WTO Trade Research Conference
Good morning. It is a pleasure to open the ninth IMF-World Bank-WTO Trade Research Conference.
Let’s begin by taking stock of where we are. World trade growth is historically low, with no signs of improvement. In fact, it is projected to decline from 5.1 percent in 2022 to 0.9 percent in 2023.
Meanwhile, the global trading system is facing several challenges: from geopolitical tensions and fragmentation, to industrial policies, to climate change.
As we prepare to discuss these challenges over the next two days, let me outline what we at the IMF see in the global trade landscape and how the international community can work together toward solutions.
Trade Policies and Rise in Trade Barriers
Weak global trade growth is likely to reflect not only the path of global demand, but also growing trade policy uncertainty and rising trade barriers.
Last year almost 3,000 trade restrictions were imposed—nearly 3 times the number imposed in 2019.
In addition, foreign direct investment is now increasingly driven by geopolitical preference rather than business fundamentals.
This points to a shift toward inward- and alliance-oriented policies, which often are ineffective.
For instance, a recent study by IMF and World Bank economists shows that US imports of Chinese goods subject to the 2018-2019 tariffs have been primarily replaced by exports from Vietnam and Mexico of firms that are intricately linked to China’s supply chains.
Rise in Industrial Policy
Of course, the surge in government intervention is tightly linked to a resurgence in industrial policy. In 2023 alone, the number of industrial policy measures increased nearly sixfold.
Most of that increase is driven by advanced economies, and has largely been motivated by strategic competitiveness, climate, or national security objectives.
Emerging markets have also increased their use of industrial policies, although they have relied less on subsidies and more on trade restrictions such as tariffs and export controls.
While industrial policies can help address market failures, they have historically been costly and often failed.
Many of these policies have an explicit trade policy component. Even in the absence of discriminatory features, industrial policies may still distort trade and FDI patterns, create negative spillovers, and risk retaliation.
According to one study, when the US, China, or the European Union put in place a subsidy measure, there’s a 73% chance that one of the other countries will retaliate within 12 months.
Design matters and practical steps are needed to promote a more common perspective across governments on the use of industrial policies.
Fragmentation
Stepping back, if these trends are not reversed, the risks could be significant.
Research by the IMF, WTO, and others shows that fragmentation could dramatically impact the world economy, costing up to 7 percent of GDP and possibly more for certain countries.
More recent IMF research which looks specifically at the impact of fragmentation on commodities shows the effects can still be sizable. Low-income countries could face long-term GDP losses of 1.2 percent on average, largely stemming from disruptions to agricultural exports. For some countries, especially commodity-dependent economies, losses could exceed 2 percent.
In addition to exacerbating food security concerns, fragmentation could also hinder the global green transition, as some critical rare minerals are highly concentrated. In fact, the three biggest suppliers of minerals account for about 70 percent of global production, on average. When unprecedented global cooperation to fight climate change is needed most, fragmentation threatens to derail our efforts.
Solutions
So, how do we move forward amid these challenges? And how can trade policy help?
First, we must secure the future by promoting trade openness and predictability, in collaboration with our partners at the World Bank and the WTO.
This includes addressing longstanding issues like subsidies and tariffs through strengthened trade rules. It also includes securing open markets in modern areas of the global economy, like services and e-commerce. And we look forward to progress towards the restoration of a dispute settlement system.
Second, we need to build supply chains that are resilient to trade shocks. To do that, countries must incorporate best practices such as greater diversification of input sourcing across countries; improving infrastructure, logistics and information systems; and reducing trade costs.
Third, we need to better understand the impact of countries’ unilateral actions. And we need to have clear-eyed discussions and cooperation to mitigate their spillovers.
Greater efforts to promote transparency, analysis, and dialogue on critical areas like subsidies and other industrial policies would go far to mitigate tensions. That is why this year, the IMF, OECD, World Bank, and WTO launched the Joint Subsidy Platform. This  data portal not only offers countries access to information about the nature, size, and economic impact of subsidies, it is also designed to facilitate dialogue on their appropriate use and design.
Conclusion
It is my sincere hope that the ideas shared here today can contribute to this important agenda.
This conference is a testament to what our institutions can achieve together, and the ways that we can shape global policy debates on critical issues in the global economy.
Thank you.
 
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The United States and the European Union and its Member States, representing nearly 800 million citizens, united by our values and bound together by the most dynamic economic relationship on earth, reaffirm our commitment to a transatlantic partnership that delivers for all our Since the last U.S.-EU Summit in June 2021, the world has changed in unprecedented ways, and we have taken ambitious steps in response. Together, we are working to secure peace, stability, and prosperity regionally and across the world, including in our steadfast support for Ukraine. We are deepening our cooperation to reflect the pressing challenges and opportunities of our time—strengthening our economic security; advancing reliable, sustainable, affordable, and secure energy transitions in our economies and globally; reinforcing multilateralism and international cooperation; and harnessing digital technologies to work for, not against, our shared values of democracy and respect for human rights and the rule of law. We are more united than ever.

A.  TOWARD A MORE SECURE AND STABLE WORLD

 
Situation in the Middle East 

We condemn in the strongest possible terms Hamas and its brutal terrorist attacks across Israel. There is no justification for We affirm Israel’s right to defend itself against these heinous attacks, in line with international law, including international humanitarian law. We will work closely with partners in the region to stress the importance of protecting civilians, supporting those who are trying to get to safety or provide assistance, and facilitating access to food, water, medical care, and shelter. We are concerned by the deteriorating humanitarian crisis in Gaza. It is crucial to prevent regional escalation. We call for the immediate release of all hostages and emphasize our shared view that a two-state solution remains the viable path to lasting peace.

Russia’s War against Ukraine and Support for Regional Stability 

The United States and the European Union remain unwavering in our long-term political, financial, humanitarian, and military support to Ukraine and its people as they defend themselves against Russia’s illegal and unprovoked war of We stand together in calling for Russia to end its brutal war and to withdraw its military forces and proxies and military equipment immediately, completely, and unconditionally from the entire internationally recognized territory of Ukraine. We are committed to achieving the widest possible international support for the key principles and objectives of Ukraine’s Peace Formula. Any initiative for a comprehensive, just, and lasting peace in Ukraine must be based on full respect for Ukraine’s independence, sovereignty, and territorial integrity, within its internationally recognized borders and uphold all the purposes and principles of the United Nations Charter.

We are committed to supporting Ukraine for as long as it takes to defend its sovereignty and territorial integrity. We recognize the urgency of ensuring that Russia does not succeed in collapsing the Ukrainian economy and of intensifying our efforts to help ensure assistance meets Ukraine’s highest priority As co-chairs, along with Ukraine, of the Multi-agency Donor Coordination Platform, we are working together with Ukraine as it develops its Ukraine Plan, embedded in its European path, to incorporate a common set of near-term priority economic, rule- of-law, and democratization reforms and a prioritized and well-coordinated approach to recovery and reconstruction assistance and investment. The United States and the European Union, together with other international donors, will continue to provide Ukraine with financing to help achieve these objectives, including to defend, repair, and rebuild its energy sector aligned with EU standards. We acknowledge Ukraine’s commitment and progress in their reform efforts, and underline the strategic importance of its EU accession process.

Russia must cease its aggression and must bear the legal consequences of all its internationally wrongful acts, including compensation for the damage caused to Ukraine. We are united in our determination to ensure full accountability. In light of the urgency of disrupting Russia’s attempts to destroy the Ukrainian economy and Russia’s continued failure to abide by its international law obligations, the United States and the European Union, together with our allies, are convening our experts to explore options to compensate Ukraine in a timely manner for the loss, injury, and damage resulting from Russia’s We are exploring all possible avenues to aid Ukraine, consistent with our respective legal systems and international law. We are also working together with the global community to address the energy, economic, and food security challenges caused by Russia’s war of choice, which are particularly acute in the most vulnerable developing countries. We condemn Russia’s attempts to block food exports and its attacks on Ukraine’s grain storage and shipment facilities since its withdrawal from the Black Sea Grain Initiative. The EU’s Solidarity Lanes remain instrumental in bolstering global food security.

As part of our efforts to aid Ukraine, in the short term, we will explore how any extraordinary revenues held by private entities stemming directly from immobilized Russian sovereign assets, where those extraordinary revenues are not required to meet obligations towards Russia under applicable laws, could be directed to support Ukraine and its recovery and reconstruction in compliance with applicable laws.

We will deepen our joint work to undermine Russia’s ability to wage its war, and maintain and expand its defense industrial base and capacity. Those who help Russia acquire items or equipment for its defense industrial base are supporting actions which undermine the territorial integrity, sovereignty, and independence of Ukraine. This includes companies supplying certain critical raw materials and high-priority items to Russia, as well as the financial institutions and other entities facilitating such We will target third-country actors who materially support Russia’s war. We will continue to vigorously and jointly enforce our sanctions and export control measures to disrupt circumvention and backfill. Our joint implementation of the G7+ price cap for seaborne Russian-origin crude oil and petroleum products supports energy market stability while diminishing Russia’s ability to finance its illegal war. We intend to act, consistent with our respective legal authorities, where we have evidence indicating violations or deceptive practices related to the price cap policy.

We reaffirm our support for the Republic of Moldova’s territorial integrity and The European Council decided in June to grant the status of candidate country to the Republic of Moldova. We will continue to support Moldova in addressing the challenges it faces as a consequence of the Russian aggression against Ukraine and in reform efforts on its European path.
We remain fully committed to supporting Georgia’s territorial integrity and sovereignty, and its European perspective. We reaffirm our shared commitment to stability in the Western Balkans and our support to the EU perspective of the region. All partners should continue making the reforms required to progress on their European path.  We note the need for Kosovo0F* and Serbia to urgently de-escalate tensions and to swiftly and unconditionally implement the agreement on the path to normalization of their relations and return to the EU-facilitated Dialogue. We remain committed to advancing a lasting peace between Armenia and Azerbaijan based on mutual recognition of sovereignty, inviolability of borders and territorial integrity. We urge Azerbaijan to ensure the rights and security of those who remain in Nagorno-Karabakh as well as for those who wish to return to their homes. We also call for all parties to adhere to the principle of non- use of force and threat of use of force.

Africa 

The United States and the European Union share a common interest in a thriving, peaceful, democratic, and resilient Africa, and welcome the accession of the African Union as a permanent member of the G20. We will work together to continue to enhance synergies in our cooperation with all our African We are committed to promoting the security, stability and prosperity of North Africa. We reaffirm our commitment to tackle common security challenges in the Sahel, including the fight against terrorism, in cooperation with ECOWAS.

Partnerships in the Indo-Pacific 

We reiterate our shared commitment to enhancing coordination and cooperation in support of a free and open Indo-Pacific with the aim of contributing to the stability, security, prosperity and sustainable development of the region, based on the promotion of democracy, rule of law, human rights and international Consistent with our respective Indo-Pacific strategies, we will seek opportunities to enhance practical cooperation in the Indo-Pacific, including through the biannual U.S.-EU Indo-Pacific Consultations. This includes expanding maritime domain awareness, encouraging cooperation on connectivity, responding to foreign information manipulation and interference, increasing coordination on cyber cooperation, and encouraging ongoing efforts to uphold fundamental freedoms and human rights. We reaffirm our unwavering support for ASEAN centrality and unity and our commitment to promoting cooperation in line with the ASEAN Outlook on the Indo-Pacific. We also reaffirm our partnership with Pacific Island countries and reiterate the importance of supporting their priorities and needs in accordance with the Pacific Islands Forum’s 2050 Strategy for the Blue Pacific Continent.

We reiterate our support for international law, in particular as reflected in the United Nations Convention on the Law of the Sea (UNCLOS), and for the peaceful settlement of disputes in accordance with international law, including under UNCLOS dispute settlement mechanism.

* This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence.
China 

The United States and European Union recall our discussions in other fora, including the G7, on the principles that underpin our relations with China. We stand prepared to build constructive and stable relations with China, recognizing the importance of engaging candidly with and expressing our concerns directly to China. It is necessary to cooperate with China, given its role in the international community and the size of its economy, on global challenges as well as areas of common interest. We call on China to engage with us, including in international fora, on areas such as the climate and biodiversity crisis, addressing vulnerable countries’ debt sustainability and financing needs, global health and pandemic preparedness, and macroeconomic stability.

With a view to enabling sustainable economic relations with China, we will push for a level playing field for our firms and workers. We are not decoupling or turning inwards. At the same time, we recognize that economic resilience requires de-risking and diversifying. In this context, we will invest in our own economic vibrancy and reduce critical dependencies and vulnerabilities, including in our supply chains. We also recognize the necessity of protecting certain advanced technologies that could be used to threaten global peace and security, without unduly limiting trade and We will foster resilience to economic coercion. We will address challenges posed by non-market policies and practices.

We remain seriously concerned about the situation in the East and South China Seas and strongly oppose any unilateral attempts to change the status quo by force or coercion. We underscore the importance of peace and stability across the Taiwan Strait, and encourage the peaceful resolution of cross-Strait There is no change in the one China policy of the United States or of the European Union.

We will keep voicing our concerns about the human rights and forced labor in China, including in Tibet and Xinjiang. With respect to Hong Kong, we call on China to honor its previous commitments with respect to Hong Kong under the Sino-Joint Declaration and the Basic Law.

We call on China to press Russia to stop its war of aggression, and immediately, completely and unconditionally withdraw its troops from Ukraine. We encourage China to support a comprehensive, just and lasting peace based on territorial integrity and the principles and purposes of the UN Charter, including through its direct dialogue with Ukraine.

Strengthening Cooperation on Security and Defence 

We will further strengthen and deepen EU-U.S. cooperation and engagement on security and defence. This could include enhancing practical cooperation in operational theatres of mutual interest. NATO remains the foundation of collective defence for its Allies and essential for Euro Atlantic security. We recognise the value of a stronger and more capable European defence that contributes positively to global and transatlantic security and is complementary to, and interoperable with We welcome the signature of the Administrative Arrangement between the United States Department of Defense and the European Defence Agency.

Partnering with Emerging Economies and Developing Countries 

The United States and the European Union are committed to accelerating progress toward the Sustainable Development Goals and to mobilizing additional financing for development. To this end, we are committed to advancing reforms for better, bigger, and more effective multilateral development banks to address global challenges and countries’ core development needs. This includes the implementation of critical financial reforms and a review of the climate finance architecture to make it more effective and efficient. We commit to raising the level of ambition to deliver more headroom and concessional finance to boost the World Bank’s capacity to support low- and middle-income countries addressing global challenges, with a clear framework for the allocation of scarce concessional resources, and to provide strong support for the poorest The United States and the European Union will step up efforts to deliver substantial contributions to this end.

Given the massive scale of need, greater private capital mobilization must play a significant role in meeting our objectives. We will continue to champion efforts to unlock private capital and will work with G7 partners through respective actions, to scale the Partnership for Global Infrastructure and Investment, including the European Union’s Global Gateway strategy, and mobilize $600 billion in quality infrastructure investments in low- and middle-income countries by Building on the discussions on U.S.-EU collaboration on the Trans-African Corridor and the India-Middle East-Europe Corridor, we are working towards identifying additional regional economic corridors to cooperate on to unlock inclusive and sustainable economic growth.

The United States and the European Union will also continue their efforts to promote digital inclusion and trustworthy information and communication technology and services supply chains around the world and pursue cooperation to develop a common vision and industry roadmap on research and development for 6G wireless communication systems.

B.  STRENGTHENED U.S.-EU ECONOMIC COOPERATION 

The U.S.-EU Trade and Technology Council (TTC) is the key forum for our cooperation on trade and technology matters. We commend the progress made and encourage advancing joint work in the run up to the upcoming TTC ministerial meeting later in 2023.

The United States and the European Union are committed to strengthening the transatlantic marketplace to support decent jobs and economic opportunities with an emphasis on mutually beneficial resilience and sustainability of our supply chains. We will advance the implementation of the Transatlantic Initiative on Sustainable Trade focusing on facilitating mutually beneficial trade across the Atlantic of products and technologies that underpin the transition to a climate- neutral economy.

Building the Sustainable and Resilient Economies of the Future 

The United States and the European Union are deepening our collaboration to address the urgent and interdependent crises of climate change, biodiversity loss and pollution, and urge ambitious action by all other major players. We will work expeditiously to implement the Paris Agreement, halt and reverse the loss of biodiversity globally and protect the ocean. We will intensify our outreach to third countries, notably in view of the 28th UN Climate Change Conference of the Parties (COP28), making every effort to keep a 1.5 degree Celsius limit on global temperature warming within reach. We are committed to working together and with others for COP28 to reach bold commitments to dramatically increase global renewable energy capacity and energy efficiency while supporting a global shift away from unabated fossil fuels, including an end to new unabated coal fired power plants. We will continue to lead efforts to cut methane to support achieving the Global Methane Pledge and look forward to a robust Methane Finance Sprint announcement at COP28.

Together, we will work to build climate neutral, circular, resource efficient and resilient economies, to promote internationally recognized labor rights, and to improve the resilience and sustainability of critical supply We will continue our work to advance the energy transition to climate neutrality and bolster energy security through the Joint Energy Security Task Force and U.S.-EU Energy Council.

We are making bold public investments in our respective economies, and will continue to also expand research collaboration, to ignite a clean industrial revolution and, with it, good jobs, and make our industries more sustainable and We will continue ongoing cooperation toward this end, and work openly and transparently against zero-sum competition to maximize clean energy deployment, including through our Clean Energy Incentives Dialogue.

We have made progress toward a targeted critical minerals  agreement for the purpose  of expanding access to sustainable, secure, and diversified high-standard critical mineral and battery supply chains and enabling those minerals extracted or processed in the European Union to count toward requirements for clean vehicles in the Section 30D clean vehicle tax credit of the Inflation Reduction We look forward to continuing to make progress and consulting with our respective stakeholders on these negotiations in the coming weeks.

Expanding Technology Cooperation and Exchanges 

The United States and the European Union are stepping up our joint efforts to promote an open, free, global, interoperable, reliable, secure, innovative, and competitive digital ecosystem. We are cooperating to manage the risks and harness the benefits of artificial intelligence (AI), working alongside our partners in the G7, OECD, and other multilateral fora. We affirm our continued work through the TTC Joint Roadmap on Trustworthy AI and Risk Management to further guide the development of tools, methodologies, and approaches to AI risk management and trustworthy AI. We confirm our joint intention to endorse a code of conduct for organizations developing advanced AI systems as part of the G7 Hiroshima process in the near We confirm our commitment to use AI for Public Good, particularly in the areas of agriculture, extreme weather prediction, emergency management and response, electric grid optimization, and health and medical research. As new and more advanced AI systems emerge, we plan to build on work done to promote responsible AI and work with industry, civil society, academia, and other stakeholders to enable trustworthy development and uptake of those technologies, and to advance our shared vision of responsible innovation in line with our shared democratic values. We recognize the importance of expanding research collaboration between the European Union and the United States for critical and emerging technologies such as AI, quantum, renewable energy, and other key areas, including by enabling transatlantic research funding activities that allow for both U.S. and EU researcher leadership while considering reciprocity in access to respective U.S. and EU research programmes and ensuring symmetry in managing intellectual property. We commit to working together to finalize an agreement on quantum-related items for the upcoming TTC meetings.

We aim to build a more secure cyberspace together. We endeavor to cooperate to promote high cybersecurity standards to protect consumers and business and decrease vulnerability to cyberattacks. To that end, we commit to work together on achieving mutual recognition for our government-backed cybersecurity labeling programs and regulations for Internet-of-things devices aiming at a Joint CyberSafe Products Action We will work for consumers in Europe and the United States to have an easy and reliable way to assess whether devices they bring into their homes, offices, and schools are secure.

Promoting Rules-Based Trade and Countering Unfair Competition

The United States and the European Union have a shared interest in reforming the WTO so that Members can better achieve the WTO’s foundational objectives and address modern-day imperatives. We will work towards substantial WTO reform by MC13 in 2024 including by conducting discussions with the view to having a fully and well-functioning dispute settlement system accessible to all WTO Members by 2024.

On 31 October 2021, we announced that we would negotiate within two years an arrangement—known as the Global Arrangement on Sustainable Steel and Aluminum (Global Arrangement)—to address non-market excess capacity and emissions intensity of the steel and aluminum industries, including to foster undistorted transatlantic trade. Throughout these two years, we have made substantial progress to identify the sources of non-market excess capacity. We have also achieved a better understanding of the tools to address the emissions intensity of the steel and aluminum We look forward to continuing to make progress on these important objectives in the next two months.

Strengthening Economic Resilience and Economic Security

The United States and the European Union are continuing to cooperate to enhance the resilience of our economies and advance our economic security interests, underpinned by a rules- based system, while preserving an open economy and a global level playing We will de-risk and diversify where we assess there are risks through proportionate, precise and targeted measures to address economic security challenges. We will continue working together to reduce excessive dependencies in critical supply chains, in close cooperation with partner countries. We share concerns about the challenges posed by, among other issues, economic coercion, the weaponization of economic dependencies, and non-market policies and practices. We will continue this work through inter alia the TTC, and with the G7 and other partners to diversify our supply chains and increase our collective preparedness, assessment, deterrence, and response to economic coercion.

We have a shared interest in protecting those advanced technologies that could be used to undermine global peace and security, and are developing our respective economic security toolkits to ensure our companies’ capital, expertise, and innovations will not be used to do Recognizing that outbound investment measures are necessary to complement its existing economic security toolkit, the President of the United States has issued an Executive Order to address risks from outbound investment and is consulting stakeholders on the U.S. rules. The European Union and its Member States are similarly exploring, based on a risk assessment, whether outbound investment measures could complement its existing toolkit. Export control regimes are central to maintain international security and stability, and necessitate cooperation between actors— including in multilateral fora—to ensure our dual-use technology protection ecosystem is continuously improved upon and cannot be exploited. We will cooperate and share lessons as we work to maximize the effectiveness of our economic security toolkit to achieve our shared interest.
Foreign information manipulation and interference is a borderless threat that poses a risk to democratic values, processes, and stability. We will expand collaboration based on common principles, such as dedicated strategies, internal organizational structures, capacity, civil society and multilateral engagement. This cooperation should aim to support like-minded partners in countering foreign information manipulation and interference, including via U.S. and EU coordinated activities, while safeguarding freedom of expression together with partner countries.

Expanding People-to-People Contacts

To preserve the strength and longevity of our transatlantic relationship, the United States and the European Union also endeavour to increase vital people-to-people exchanges. We will work to achieve visa-free travel between all EU Member States and the United States. Together, the United States and the European Union intend to provide additional resources to increase the number of transatlantic academic exchanges. The European Union will increase its funding to the Erasmus+ programme, and will double EU support to the Fulbright-Schuman programme, and across all Fulbright Commissions in EU Member States. The United States plans to increase its funding to all Fulbright Commissions in EU Member States, including the Fulbright-Schuman programme. This collective support will significantly increase the number of transatlantic academic exchanges between our citizens over the next five years.

 
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The Council has adopted a regulation to help the EU and its member states protect themselves from economic coercion by third countries.
The new legislation, known as the Anti-Coercion Instrument (ACI), is meant to serve as a deterrent for third countries targeting the EU or its member states. The aim is to use this legislation to de-escalate and induce the discontinuation of coercive measures in trade and investment through dialogue.
When this is not possible, and as a last resort, the EU will be able to adopt countermeasures such as the imposition of trade restrictions, in the form of, for example, increased customs duties, import or export licences, restrictions on trade in services or access to foreign direct investment or public procurement.
Definition of economic coercion
Economic coercion is defined as a situation where a third country attempts to pressure the EU or a Member State into making a particular choice by applying or threatening to apply, measures affecting trade or investment against the EU or a member state.
Activation of the mechanism
The Council will have significant involvement in the decision-making process, determining the existence of economic coercion.
The European Commission will be given implementing powers in decisions on the EU’s response measures, while ensuring increased involvement of member states in these decisions.
The instrument can be triggered by a wide range of coercive economic practices where a third country applies or threatens to apply a measure affecting trade or investment in order to prevent or obtain the cessation, modification or adoption of a particular act by the Union or a member state. Input from stakeholders will be taken into account when considering activation of the instrument, and businesses are encouraged to come forward with relevant information.
The ACI and any actions which can be taken under the instrument are consistent with the EU’s international obligations and fully grounded in international law.
Next steps
The signing of the regulation is expected to take place on 22 November 2023 and will enter into force 20 days after its publication in the Official Journal of the EU.
Background
The European Commission proposed this legislation on 8 December 2021 at the request of the Council and the European Parliament. The European Parliament’s negotiating mandate was adopted on 19 October 2022, while the Council’s negotiating position was agreed on 16 November 2022. An interinstitutional political agreement was reached on 28 March 2023. On 3 October, the European Parliament green-lighted the regulation. Today’s decision at the Council was adopted as a point without discussion at a meeting of Agriculture and Fisheries EU Ministers.
 
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It was a presentation by Laura Papi, Deputy Director, European Department, IMF given at the Budapest Economic Forum on October 17th 2023.Good morning to all of you. Thank you for the introduction. It is a pleasure to be here today and for the first time at the Budapest Economic Forum. I am honored to have been invited to speak.
Today, I will discuss the outlook for Europe and how we see the risks. Inflation, implications of the geoeconomic fragmentation, and the green transition will be particular areas of focus. I will discuss key policies for securing low inflation and forging a path of higher long-term growth.
Progress has been made in taming inflation and the likelihood of a soft landing has increased, both globally and in Europe.
But downside risks are significant. Policymakers face the risk of persistent and more volatile inflation. We now live in a more shock prone world. And the longstanding slowdown in productivity growth, the geoeconomic fragmentation and the challenges of the green transition cast doubt on whether European economies can return to the pre-pandemic growth trajectory.
These competing challenges and a highly uncertain outlook will test policymakers in Europe.
These themes are pertinent to Hungary, which is facing a difficult macroeconomic environment, with still-high inflation and the longest recession since the mid-1990s.
Let me start with the European Outlook.
Outlook and Near-term challenges
At first glance, the European economy seems to be approaching a relatively benign moment.
The IMF’s baseline forecast anticipates a continued moderation of inflation in Europe and—contrary to initial expectations of recession—modest growth in 2023 and a slight recovery in 2024. We expect that for Europe as a whole 2023 growth will be 1.3 % (2,7 in 2022), picking up to 1.5% next year. Advanced economies are expected to go from 0.7 % to 1.2%, while Emerging European Economies are expected to have a sharper recovery from about 1 to about 3 %.
Aided by easing commodity prices and supply constraints, monetary tightening has cooled headline inflation, providing support to real wages. In most EU countries, the tightening cycle has peaked, with the prospect of an approaching soft landing as growth this year slows but remains in positive territory.
However, there are divergencies across European countries: energy-intensive and manufacturing-oriented economies, such as Germany and Hungary, are performing less well.
And downside risks continue to prevail everywhere.
Headline inflation is falling, but is not expected to return to target until 2025 in many countries, for some even 2026.  Core inflation has been persistently high in many European economies, especially in services. Nominal wages are growing rapidly, outpacing inflation in some economies, especially in Eastern Europe.
As the pandemic and Russia’s war in Ukraine hit European economies, in only 2 years prices increased by 25 percent, as much as over the 5 years following the global financial crisis. In Hungary, inflation reached 25 percent at end- 2022, and prices have increased by 41 percent cumulatively from end-2020 to August 2023. This rapid and massive price shock eroded workers’ purchasing power and left a large real wage gap.
Hence, some wage catch up is reasonable and to be expected. However, we have some concerns.
We have decomposed wage growth into inflation expectations and wage catch up in green, the unemployment gap in red, productivity growth in yellow, and in gray other, that is wage growth in excess of what is to be expected from the factors I just mentioned, which as you can see is growing especially in Central, Eastern, and South-Eastern Europe, CESEE.
The risk is that wage pressures could translate into additional inflation pressures, especially where wage setting is backward-looking, as is the case in many European emerging markets, and hence harm competitiveness.
New IMF research, in our recent World Economic Outlook, also shows that near-term inflation may play a greater role in setting long-term inflation expectations than previously thought. Near-term expectations, in turn, are influenced to a large extent by backward-looking agents, particularly in emerging market economies where such agents are more prevalent. There is also evidence that the pass-through from inflation expectations to inflation tends to be higher when inflation is high.
The strength of the labor market is fundamentally good news.
Vacancy to unemployment ratios stand at record highs and unemployment rates at record lows in most of Europe.
But all of this means additional upward nominal wage pressures are likely and the possibility of a wage-price spiral exists.
Let me be clear: we don’t see wage-price spirals likely in advanced European economies, but the risk in Eastern Europe is not negligible.
Another driver of high inflation has been firms’ profits.
In many countries, in the last couple of years, firms have passed on more than the increase in input prices to consumers. In CESEE too we saw an increase in profits, which have started to fall. Going forward, this is positive in the sense that firms could absorb some wage increases by lower profits. But there is no guarantee that this will continue. In sum, all of these forces put together suggest that we may be experiencing a period of especially sticky price and wage pressures.
Besides the more cyclical factors that I have just discussed, there are some additional risk factors for inflation, which are more structural in nature.
Take geoeconomic fragmentation. We have already experienced big shocks from fragmentation, especially Russia’s war in Ukraine. We could see additional commodity price spikes that feed through to core inflation. More generally greater fragmentation brings more trade restrictions and disruptions of supply chains, continuing to generate negative supply shocks, which will be inflationary.
The pre-pandemic view was that central banks could generally ignore supply shocks as these were believed to be mostly transient. But, the pandemic and war in Ukraine have highlighted how supply shocks can have broad and persistent inflation effects.
Medium-term challenges
Let me turn to the medium- and long-term challenges.
Europe’s medium-term growth prospects have been declining for some time.
Since the 2008 global financial crisis, per capita growth has fallen and we expect growth to remain weak over the medium term.
The pandemic and the energy crisis have resulted in significant scarring to the level of output. And this comes at a time when countries also grapple with the structural shifts from fragmentation, climate and technological change, and demographic pressures.
Fragmentation is a particularly potent economic challenge. The increasing trade restrictions and reconfiguration of supply chains, besides raising production costs, can further dampen Europe’s weak productivity growth.
The economic costs of fragmentation are likely to be substantial. While estimates vary, greater international trade restrictions could reduce global economic output by up to 7 percent over the long term, or some $7 trillion in today’s dollars—equivalent to the combined size of the French and German economies. If technological decoupling is added to the mix, some countries could see losses of up to 12 percent of GDP. And looking just at commodities trade, the IMF estimates that segmentation in the trade of these critical inputs could erase 2 percent from global GDP and up to 3.5 percent from that of emerging Europe.
While reshoring or near-shoring some aspects of production may also present some opportunities to some countries, these are only available if cost competitiveness is preserved, especially on wages.
But let me be clear: economic fragmentation is a negative sum game for the world as a whole.
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Climate change is another major challenge. European countries, like other parts of the globe, are experiencing rapid temperature rises and greater frequency of natural disasters, underscoring the urgency of transitioning to a greener and more climate resilient economy. The green transition holds the promise of being an engine of growth accompanied by greater sustainability and resilience and is one of the key imperatives of our times.
In the short term, though, this may entail significant adjustment costs and benefits spread unevenly across countries, firms, and people. The effects on prices and growth could be uncertain in the short to medium term, depending on how well managed and orderly the adjustment.
Take the auto sector, so important for several countries in Europe including Hungary. IMF research shows that the transition to electric vehicles is already negatively affecting employment in sectors and regions focused on internal combustion engine vehicle production. We are likely to see disruptions in the extensive regional value chains that have been built around supplying the auto industry, which employs 7 percent of the European workforce. This highlights the need to facilitate the relocation of factors of production across sectors.  This transition will have implications for employment, investment, and public policy as countries have to reorient worker training and investment, including in new infrastructure.
Finally, Europe confronts labor supply constraints due to demographics, and capital stocks in emerging Europe are still low.
Policies
I realize that I have laid out a sobering list of near- and long-term challenges. So, what to do about all this?
First, it is critical not to loosen policies prematurely in response to what may be temporary declines in inflation.
In a recent IMF paper, we have looked at 100 inflation shocks and we have seen that in many cases, policies were eased too soon, and inflation reaccelerated: here are some examples of premature celebrations, but there are many more.
Fund research also shows that countries that resolved inflation episodes experienced lower growth in the short term, but not over the medium term.
Naturally, the level and duration of tightness in the monetary policy stance should be calibrated to country specific conditions. This may mean that some central banks keep rates at current levels for some time while others may have to raise them further. While many emerging economies started raising policy rates already in 2021 and by substantial amounts, real rates have remained below the neutral level in some countries. Hungary has now one of the highest real policy rate in Europe.
Given the high cost of erring on the side of monetary policy being too loose, the empirical case for a less contractionary stance should be compelling. Monetary policy should remain restrictive until there is clear evidence of a substantial improvement in the core inflation forecast; a reduction of upward inflation risks which hinges mainly on labor market developments; and the absence of upward movements in inflation expectations. These conditions have not been met in most countries.
The key message is that fighting inflation is difficult in the short-term but pays off later, while delaying the day of reckoning ultimately requires a higher sacrifice in future growth and employment.
In emerging markets, in particular, bringing down inflation once it gets sticky can be very costly and high inflation creates competitiveness problems that EMs can ill afford. Short-term pain for long-term gain.
Second and turning to fiscal policy, our strong recommendation is that all countries step up their efforts to rebuild fiscal buffers while protecting the vulnerable. This means consolidation, starting now and especially in high-debt and high deficit countries. By reducing deficits, fiscal consolidation will complement monetary policy in the fight against inflation. Importantly, it will re-build fiscal space for future shocks and for productivity-enhancing investments, including in green infrastructure, and to face the critical transitions that we are experiencing.
In many emerging economies, there is significant room to mobilize resources and to achieve greater expenditure efficiency through better targeting and better spending prioritization. In many countries, there are opportunities to eliminate tax leakages, exemptions, and inefficiencies. IMF research shows that the potential for revenue mobilization by increasing tax efficiency in emerging European economies is as high as 2 percent of GDP, on average. Many countries still have costly and counter-productive energy subsidies, which run counter to the green transition and reduce energy security, which need to be eliminated. Support can be given in a targeted way at a fraction of the current cost. And with high yields globally, governments should be even more rigorous in their prioritization of public spending and not leave money on the table on the tax front.
Third, structural policies remain crucial for achieving strong, sustainable,  and more evenly distributed growth. With greater prevalence of supply shocks, constrained policy space, and big transitions under way requiring large reallocation of factors of production, policies that can stimulate the supply side and facilitate the necessary adjustments have to take center stage.
Country needs vary and reforms need to be tailored to the specific institutions and initial conditions, but there are some common priorities.

Removing barriers that stand in the way of economic innovation and business dynamism. A strengthened business environment with policies that encourage investment and R&D spending will enhance productivity and competitiveness.
Measures to improve worker training and skills, as well as active labor market policies, will be particularly important to facilitate the green and digital transitions without generating employment losses and to meet the needs of the new economy.
Boosting labor participation will help counter demographic trends and can relieve the tightness in labor markets, and help ease inflation pressures.

In emerging European economies, the need to get structural policies right is particularly important given the urgency of reaccelerating income convergence. To attract inward investment countries should ensure business-friendly environments by strengthening public governance, enhancing skills and infrastructure. In addition, investing in human capital to align education, health, and social protection outcomes with those of advanced economies can help stem the excess flow of emigration.
To address geoeconomic fragmentation, some countries have introduced industrial policies to encourage the establishment of critical industries or to produce key inputs at home citing national security or just reshoring. Industrial policies have a role to play in addressing market failures and externalities, such as in the provision of critical infrastructure or in supporting basic research, an under-provisioned public good by the private sector. But they need to be deployed only narrowly and with care. Costly subsidy races and the use of distortionary tariffs must be avoided, and policies should be coordinated at the multilateral level to avoid beggar-thy-neighbor outcomes.
For the EU, focusing on completing the single market—completing the single services market, the banking union, and the capital markets union—is absolutely vital. Green subsidies should maintain the integrity of the EU’s Single Market and follow a common EU approach. Together with the implementation of the Recovery and Resilience Plans, there reforms are critical to boost the EU’s productivity and competitiveness.
Energy importers should continue to seek to diversify suppliers to avoid the consequences of overdependence on a single source.
International collaboration on climate change, including a global carbon price floor, will reduce emissions and complement domestic policies. The recently published IMF fiscal monitor proposes a practical mix of policies that are feasible and would achieve the climate goals, including also feebates, green subsidies, and regulation standards, combined with transfers to vulnerable workers.
Conclusion
I realize that these challenges, and the proposed solutions, seem daunting. But every journey starts with a single step.
The policies that governments put in place today have important implications for the trajectory of inflation, competitiveness, and growth in the future.
The good news is that tackling inflation now will strengthen resilience and help to buttress competitiveness in the long term.
As inflation is brought under control and fiscal space is rebuilt, European policymakers will be able to seize the opportunities posed by big transitions rather than being a casualty of these structural shifts.
Structural policies that help boost supply, including those at the EU level, ultimately will be the only way of boosting growth and will also alleviate some of the structural inflation pressures.
And all this in turn will play an important role in raising regional growth and in helping emerging economies like Hungary to converge with Europe’s advanced economies.
The IMF remains deeply committed to the region and will continue to support our member countries to foster macroeconomic stability and higher living standards.
Thank you.
 
To reach the slides of the presentation, click here.
 
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