Brussels Playbook: Ukraine tariffs — Kaili kicks back on kickbacks — German subsidies

DRIVING THE DAY: UKRAINE AGRI DRAMA

EU SEEKS LAST-MINUTE DEAL ON TARIFFS: EU diplomats are seeking to strike an 11th-hour deal with Eastern EU countries on agriculture, in order to extend Ukraine’s tariff-free access to the EU market for another year.

Diplomats are warning that the decision to extend that deal — which was postponed at the last minute — is becoming a test of the EU’s credibility. A failure to extend market access would throw into doubt Brussels’ promises to help Ukraine on its path toward EU accession.

Refresher: After Russia’s illegal and brutal invasion of Ukraine last year, Brussels suspended all remaining import duties and quotas on Ukrainian goods for one year to help Kyiv’s war-ravaged economy.

The emergency liberalization comes on top of the EU-Ukraine Free Trade Area deal from 2014, which cut most tariffs but maintained tariffs on certain industrial and many agricultural goods to protect EU poultry, wheat and maize producers, who struggle to compete with Ukraine’s highly productive and competitive agri industry.

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Victims of their our own success: The emergency liberalization program worked, as Ukrainian sales to the Union of maize, wheat, eggs and other products soared — in fact, it has worked too well, at least in the eyes of Eastern farmers, who now warn they risk going bankrupt amid plummeting prices.

While last year European leaders feared grain shortages and a food crisis, the Continent is now facing a new supply glut, as many traders stockpiled grain expecting higher prices, but are now facing falling prices.

Turns out, four decades after the EU’s infamous “lakes of milk” and “mountains of butter” crisis, in a highly digitized economy where AI offers investment advice, traders and governments alike are still terrible at predicting the future supply of agricultural goods.

The question now is whether the EU will extend the emergency liberalization for Ukraine for another year. EU ambassadors were expected to vote on an extension on Wednesday, but the vote was postponed to Friday, according to two diplomats and one official.

Hungary, Poland, Slovakia, Romania and Bulgaria have all called for the re-introduction of tariffs on Ukrainian agri-food products. While several Western EU ambassadors were ready to vote for an extension with a qualified majority (overruling the opponents), the Swedish presidency of the Council of the EU and the Commission are still hoping to strike a deal with the Easterners.

Can’t solve every problem with money: EU countries have already agreed to grant the most affected farmers in the Union’s East financial aid worth €100 million, but the Commission has warned against using up all of the EU’s €450 million dedicated agricultural crisis reserve on this one crisis — warning that it’s still early in the year, and that the coming months will likely bring more problems for farmers that will require aid … just think of the already looming droughts!

What’s next: Time is running out for the EU to extend Ukraine’s tariff-free access, which ends in early June but needs to be approved by the Parliament, after EU ambassadors agree. “Friday is the latest possible date for a vote, in order to get approval from the Parliament in time before the current regime lapses,” one of the EU diplomats told Playbook.

REPORT WARNS OF GROWING SHARE OF CONTAMINATED UKRAINIAN LAND: Russia’s invasion has rendered almost 5 million hectares of Ukrainian agricultural land unsuitable for use.

Mines, contamination from explosives and armed fighting mean a growing share of land is being lost, warns the GLOBSEC think tank in a new paper that will be published today, and which Playbook readers can find here.

“With 174,000 square kilometers of potentially contaminated territories as of April 2023, Ukraine has become one of the most contaminated countries in the world and currently faces enormous challenges in clearing its territory from mines and unexploded ordnance,” warned Iuliia Osmolovska, director of GLOBSEC’s Kyiv office, adding that according to some estimates, “land area of grain crops could be reduced by 45 percent after two years of war.”

ALSO TODAY — BJÖRN SEIBERT IN INDIA: Commission President Ursula von der Leyen’s chief of staff Björn Seibert is arriving in India today, officials tell Playbook, to prepare the first EU-India Trade and Technology Council meeting.

Seibert will meet Foreign Secretary Vinay Mohan Kwatra and Commerce and Industry Minister Piyush Goyal to prepare the first TTC meeting, which is penciled in for May in Brussels. Von der Leyen announced plans to strengthen trade and political ties with India during her trip to the country last year.

During his trip, Seibert will also meet Prime Minister Narendra Modi’s sherpa, Amitabh Kant, to discuss preparations for the G20 summit of the world’s biggest economies in September.

PARLIAMENT LATEST

KAILI DENIES KICKBACK ACCUSATIONS: Greek MEP Eva Kaili denied facing another criminal investigation into suspicions of fraudulent payments involving four former assistants in the European Parliament from 2014 to 2020.

Through her lawyers, Sven Mary and Michalis Dimitrakopoulos, Kaili said in a statement Wednesday that “after thorough investigations from the competent institutions, corruption never took place concerning compensations that were paid to her associates.”

Kaili was responding to POLITICO’s report on leaked documents revealing fresh details about this separate investigation the MEP is facing, apart from Qatargate.

According to a letter from the European Public Prosecutor’s Office (EPPO) to Parliament President Roberta Metsola, the probe is looking at Kaili for three potentially fraudulent activities: whether she misled Parliament about her assistants’ location and work activities; took a cut of their reimbursements for “fake” work trips she orchestrated; and also took kickbacks from part of their salaries.

Forces against me: “All the above consist [of] the offense of defamation,” Kaili said, arguing that controls take place regularly. “It is obvious that some forces, acting with malicious political motives, attempt to criminalize standard administrative procedures of the European Parliament, as they realize that charges against me concerning known case [Qatargate] are falling apart,” she added.

PARLIAMENT’S PLUSH PENSION POT FACES €300M HOLE: EU taxpayers could soon be coughing up €23 million per year to bail out a pension scheme for hundreds of former MEPs that is poised to implode, Eddy Wax reports. Top Parliament officials are racing to try and rescue a legacy pension fund that faces a €308 million shortfall and could run out of money as soon as 2024.

“The fund will run out of capital soon,” states an internal document prepared by the Parliament’s top civil servant Alessandro Chiocchetti, and seen by POLITICO, which says the fund benefiting hundreds of former EU lawmakers faces a “dramatic financial situation.” Read more.

MELONI’S MEPs ABSENT AS FAR-RIGHT SLAMS MIGRATION DEAL: Italian MEPs from Giorgia Meloni’s ruling Brothers of Italy party were noticeably absent from a press event on the EU’s draft migration and asylum deal held by MEPs from nine other far-right parties in the EU Parliament Wednesday, including from their own European Conservatives and Reformists (ECR) group.

Border bros: The besuited male MEPs from parties like Poland’s Law & Justice, Hungary’s Fidesz and Spain’s Vox railed against the “Brussels elites” over a majority of MEPs’ decision last week to open talks with the Council on the migration reform. Incensed by the inclusion of a policy of mandatory relocation of migrants, they announced a new “policy group” to put pressure on national governments, who want a long-awaited deal by next spring.

Pressure movement: “We will campaign in the member states against an open-borders migration pact and the European Parliament’s left-wing version of the migration pact,” said Charlie Weimers, a Sweden Democrats MEP, who is leading the push. Sweden’s government, which holds the rotating Council of the EU presidency and relies on Weimers’ party’s support to govern, was buffeted last weekend when the party threatened to withdraw its backing over the EU draft migration deal.

Meloni keeps quiet for now: Despite voting against the pact at the earlier committee stage, Meloni’s Brothers of Italy supported a Parliament push last week to open talks with the Council to agree on a long-awaited deal on how to handle migration into the EU. “They voted in favor of the mandate to negotiate because they believe progress can be made with the input of the Italian government,” an ECR group insider told Eddy Wax.

MEP BOOTED FROM SPANISH SOCIALISTS: Spanish MEP Mónica Silvana González, who was docked around €10,000 by the Parliament in January for harassing three of her assistants, has left the 21-strong Spanish Socialist delegation but remains in the broader Socialists and Democrats group, a spokesperson told Eddy on Wednesday. Silvana did not reply to requests for comment.

What’s up with Monicas? Silvana is not the only MEP named Monica to be sanctioned for harassment this year. Monica Semedo — a Renew lawmaker from Luxembourg — said last Friday that she’s going to take the EP to court over her fine.

MORE ON RUSSIA’S WAR

XI TRIES TO REASSURE UKRAINE: Chinese leader Xi Jinping on Wednesday reassured President Volodymyr Zelenskyy that Beijing would not add “fuel to the fire” of the war in Ukraine and insisted the time was ripe to “resolve the crisis politically.” While Xi’s remarks — as reported by the state’s Xinhua news agency — made no specific reference to international fears that China could send arms to Russia’s invading forces in Ukraine, his words will be read as a signal that Beijing won’t give direct military assistance to Russian President Vladimir Putin.

More from Stuart Lau and Veronika Melkozerova.

POTENTIAL US PRESIDENTIAL HOPEFUL CALLS FOR CEASEFIRE IN UKRAINE: Florida’s Republican Governor and potential presidential candidate Ron DeSantis said he supported the idea of a ceasefire in Ukraine — a move long opposed by Kyiv, which has set reclaiming its lost territory as a precondition for any talks with Russia.

“It’s in everybody’s interest to try to get to a place where we can have a ceasefire,” DeSantis said in an interview with the Japanese, English-language weekly Nikkei Asia.

British fans: DeSantis is meanwhile heading to Britain for high-level talks this week as a part of a four-country “trade mission” to promote his state on the world stage. Nigel Farage’s new right-wing party Reform UK is trying to cozy up to DeSantis, who is expected to announce his bid for the 2024 Republican presidential candidacy in the coming weeks and become one of Donald Trump’s rivals in the campaign.

Stefan Boscia has more on how the Floridian has become a popular figure among some British conservatives as a seemingly less chaotic right-wing alternative to Trump.

G7 BAN ON RUSSIAN DIAMONDS GATHERS PACE: G7 countries are pushing to agree to ban sales of Russian diamonds when the group’s leaders meet for a summit next month. Preparations are well on track to announce more details at the summit in Japan starting on May 19, a European government official involved in the negotiations told POLITICO’s Barbara Moens.

This comes amid growing hopes that new technology will enable authorities to track the gems around the world.

Which technology? The Swiss company Spacecode now claims to have a solution to that problem: a new device that can identify which region of the world individual diamonds come from. According to Pavlo Protopapa, who is chairman and CEO of the company, Spacecode now has the technology to trace the geographic provenance of diamonds by understanding the morphology — the chemical composition and the optical properties of a diamond — as stones from certain regions have similar characteristics.

But but but: That’s not to say it’s a done deal. One question is when the technology will be ready to roll out in time, as Ukraine’s supporters want to impose the Russian diamond ban as soon as possible. Another issue is how the diamond sector will react. Tom Neys, a spokesperson for the Antwerp World Diamond Centre, warned the sector will not accept “rubber stamping solutions” and said that any solution needs to be watertight. More from Barbara here.

THE CHECHEN SOLDIERS HOPING TO END RUSSIAN RULE: Chechen volunteer soldiers fighting for Ukraine say when this war is over, they hope to free their region from Russian rule back home. Jamie Dettmer has the story from Kyiv.

CITY OF SPIES: Foreign interference and espionage have increased to levels not seen in decades, Belgium’s General Intelligence and Security Service warned in a report for 2022, the first time it had published such an analysis.

“At the time of writing, we observe that espionage and foreign interference activities have reached levels that had not been seen since the Cold War,” the service said. “The feeling of latent instability and the impression of an irreversible Belgian societal degradation provide ideal conditions for ill-intentioned people to expand their playground and exploit this situation.”

AUDITORS SLAM EU DEFENSE PLAN: Despite the EU’s grand plan to boost its defense capabilities, the Union’s spending watchdog warned that Brussels is unprepared to meet the task.

The European Court of Auditors (ECA) warned in a report Wednesday that the Commission lacks a long-term strategy on defense and is understaffed to meet its increasing needs in this field. But the EU’s executive wrote in its response to the ECA, seen by POLITICO’s Gregorio Sorgi, that it has already taken steps to improve long-term planning.

**Register for the Brussels Economic Forum on 4 May, focusing on competitiveness, with Executive Vice-President Dombrovskis, Commissioner Gentiloni, Spain First Deputy PM Calviño, Eurogroup President Donohoe, and IMF Managing Director Georgieva.**

IN OTHER NEWS

THE REAL REASONS EU’S PHARMA INDUSTRY IS AILING: The European pharmaceutical sector is screaming bloody murder after the Commission on Wednesday unveiled plans to cut into the industry’s profits in a bid to improve access to medicines throughout the bloc. The source of their ire: a proposal that would shave two years off the amount of time new medicines have the market to themselves. A shorter exclusivity period means earlier competition from unbranded competitors, leading to lower drug prices — and lower profits.

But exactly why the sector is ailing — and whether the pharma legislation will indeed finish the victim off — warrants a bit of deeper digging. Carlo Martuscelli has the full explainer here on the real reason Europe’s medicines industry is dying.

GERMANY’S HABECK PUSHES FOR ELECTRICITY SUBSIDIES: German industries should get a subsidized electricity price to boost their competitiveness, Vice Chancellor and Economy Minister Robert Habeck said Wednesday.

“If we want to master the transformation [toward renewable energies] and if Germany is to continue to develop as a business location … we would be well advised to give companies a fair chance to carry out this development,” Habeck told reporters during a press conference. “For me, this also includes an industrial electricity price.”

Get ready for the next fight on energy subsidies: These subsidies could potentially be financed by the remaining funds from Germany’s €200 billion gas price relief package, he said. That fund, introduced at the height of last year’s gas crisis triggered by Russia’s war on Ukraine, had provoked strong criticism from European partners including France, Italy and Spain, which accused Germany of distorting the EU’s single market by using its financial heft to shield its citizens and companies in a way that other countries couldn’t.

But subsidies are also controversial within Germany’s own ruling coalition, with the liberal FDP calling for a drastic reduction in subsidy programs — which have exploded since the COVID crisis — to balance out Germany’s budget.

More from Hans von der Burchard here for POLITICO Pro subscribers.

COMMISSION SAYS IT RULED OUT CONFLICTS OF INTEREST IN MERGER STUDY: RBB Economics, a consultancy that helps big businesses with mergers, “was the best placed to carry out” a study on the EU’s merger controls that was criticized by transparency campaigners at Corporate Europe Observatory as a potential conflict of interest, the Commission said Wednesday. (Refresher from prior Playbook here.)

“The Commission takes very seriously any professional conflicting interest that could affect the objective result of a procurement contract,” the EU executive said. “Factual elements are used to objectively verify whether a professional conflicting interest exists.”

**It’s next week! On May 4 at 1:30 p.m., POLITICO Live organizes a virtual event “Is Europe on the right path to prevent medicines shortages?” . Our healthcare reporter Helen Collis will be joined by MEP Kateřina Konečná (GUE/NGL, Czech Republic); Adrian van den Hoven from Medicines for Europe; Darija Kuruc Poje from the European Association of Hospital Pharmacists and Prof. Gilles Vassal, from the European Society for Paediatric Oncology to discuss to what extent the proposals in the Pharmaceutical legislation will help or fail to overcome medicines shortages in Europe. Register now!**

AGENDA

— Commissioner Thierry Breton will present new rules to complete the single market for standard-essential patents. Press conference at 11 a.m. Watch.

— Commissioner Valdis Dombrovskis participates in the Eurofi High Level Seminar 2023.

— Commissioner Helena Dalli delivers a keynote speech for Roma Week.

— Commissioner Vĕra Jourová receives Michael Pezzullo, secretary of Australia’s Department of Home Affairs.

— Commissioners Nicolas Schmit and Helena Dalli meet virtually with Ukraine’s Minister for Social Policy Oksana Zholnovych.

— Commissioner Elisa Ferreira hosts the third meeting of the Group of High-level Specialists on the Future of Cohesion Policy.

— Commissioner Mariya Gabriel is in Ispra, Italy: visits the Joint Research Centre and delivers an opening speech at the workshop “Translating radiotheranostic cancer research into clinical practice in Europe.”

BRUSSELS CORNER

BIRTHDAYS: MEP Christian Doleschal; Former Commission Vice President and ex-MEP Viviane Reding; Former MEP Jussi Halla-aho, now a Finnish MP; Former MEP Estefanía Torres Martínez; European Commission’s Francesco Molica and Sandra Cavallo; Journalists Emily Schultheis and Pascal Hansens; European Parliament’s Michael Alexander Speiser; Nikša Tkalec, Croatian agriculture ministry spokesperson, The Economist’s Jon Fasman; Eurasia Group’s Emre Peker; King Willem-Alexander of the Netherlands … and King’s Day in the Netherlands.

THANKS to Barbara Moens, Leonie Kijewski, Eddy Wax, Gregorio Sorgi, Suzanne Lynch, Hans von der Burchard, Aoife White, Nektaria Stamouli, editor Emma Anderson and producer Grace Stranger.

**A message from Together for Sustainable Packaging: How often do you drink water? An independent study finds that water consumption for a reusable system with 100 reuses is 267% higher compared to a paper single-usage model. Why? The extra washing required could add an additional four billion litres of water each year in Europe. Together for Sustainable Packaging believes it is crucial to consider the full lifecycle of packaging in Europe. Customers could be required to store, potentially rinse and return items to the restaurant, a collection point or vending machine. The extra water for washing may also lead to higher emissions, with independent figures suggesting more than 15,000 extra tonnes of CO2 emissions per year because of energy used to heat the water and transport the packaging. Beware the unintended consequences of well-meaning legislation. Visit forsustainablepackaging.eu.**

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