Hello! Welcome to the sixth edition of my newsletter, Most Favoured Nation. A little update: as of this week, I am introducing a paid subscription option. Those of you who want to receive the newsletter every single week (unless I’m on holiday or something) can now do so for £4 a month, using the button below.1 A bargain, I know. Equally, those of you who are happy receiving the newsletter fortnightly for free can also keep doing that.
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CPTPP is back in the news. Well, it never leaves the news for very long because the UK re-announces its intention to join every couple of weeks or so. But still. This time CPTPP is in the news for a good reason because the existing membership have agreed to start the UK’s accession process.
I think the UK will join the CPTPP pretty soon – assuming it first concludes bilateral negotiations with Australia and New Zealand, and re-negotiates its bilateral deals with Canada and Mexico, in the next year or so. Depending on which side of the British trade debate you sit on this is either very very exciting or very very scary (I think it’s fine, and probably a good idea, for what it’s worth), but one of the more interesting questions I get asked is how CPTPP membership would interact with the bilateral trade deals the UK already has, or will have, with most of its membership.
[Yes, this is the rules of origin bit.]
First, it’s important to understand that the economic benefit of CPTPP over and above the existing bilateral deals is very small, and the only real new tariff liberalisation will be in relation to Brunei and Malaysia, which the UK won’t have trade deals with already (again, I’m assuming Australia and New Zealand trade deals get done first). But the CPTPP rules of origin provisions do mean that UK exporters will have more opportunities to qualify for tariff-free trade.
Under CPTPP, UK manufacturers will be able account for inputs sourced from other CPTPP countries as local to the UK when attempting to meet the agreement’s rules of origin/local content requirements.
To give an example: if a UK carmaker wanted to export to Mexico tariff-free under the CPTPP, 45-55% of the value of the vehicle would need to originate in the UK and/or other CPTPP members. This means that the UK carmaker could import and use car parts from other CPTPP members without worrying that it will lead to the final export to Mexico failing to qualify for tariff-free trade.
However, this doesn’t help UK car manufacturers that source parts from the EU. But they instead could continue to use the existing UK-Mexico bilateral trade deal, which does allow (at least for now) parts from the EU to count as British for the rules of origin calculations.
TRADE WARS, postponed
In MFN2: Never Ever Tweet I discussed the US’s threat to slap new tariffs on a number of countries because they are imposing unfair digital services taxes on US tech firms/their politicians are tweeting mean things about US tech firms.
Anyhow, the US has announced that tariffs will indeed be imposed on some imported products from Austria, India, Italy, Spain, Turkey and the UK … but is suspending the applications of these tariffs for 180 days. The US say it is going to wait and see whether the OECD tax negotiations (see this piece from CER colleague Zach Meyers for more) bear fruit first. Leverage.
The full lists of products that could be subject to tariffs from all the different countries is here [scroll down], and includes UK-originating chess sets. Checkmate, or something.
Chlorinated chicken to the rescue
In the latest episode of All the Goods Trade Puns Were Taken I stupidly let slip that I had a [not at all serious!] plan to use chlorinated chicken to save the WTO, and promised to elaborate further in this newsletter. It goes something like this:
The UK has left the EU, but retained all of its rules.
Therefore, the US should bring WTO disputes against the UK over every single EU-originating rule it thinks contravenes the UK’s WTO obligations. So this means re-opening the hormone beef dispute, going again on chlorinated chicken … and probably a few other things as well.
The UK will either change its rules, or defend itself.
If the UK changes its rules – US food exporters get access to a new market and the US regulatory model gets a foothold in Europe, right on the EU’s doorstep. Drama, but the WTO doesn’t necessarily get saved.
If the UK decides to defend itself, the US has a problem. Because the US has blocked appointments to the WTO’s appellate body, there is currently no functioning appeals process. This means that the UK could just appeal any panel ruling against it into the void, and nothing would change.
To resolve this, the US could stop blocking appointments to the WTO’s appellate body.
Chlorinated chicken saves the WTO (or at the very least leads to the return of the appellate body).
This has gone slightly under the radar, but the UK’s WTO government procurement agreements schedule [list of commitments] has been signed off by all of the other GPA members. A mammoth effort by the department for international trade, and in practice it means British companies bidding for [some, subject to terms and conditions] government contracts in the other 47 GPA member countries can continue to do so without the spectre of potential nationality-based discrimination hanging over them, and vice versa.
This could be particularly important for British firms operating in the US, what with the tilt towards Buy American.
The Cost of Trade
The WTO released an interesting paper looking at the costs different countries face when trading internationally, relative to the cost of trading domestically. One chart caught my eye, mainly because it suggests France is as close to a fully-formed free trading paradise as you are ever likely to find. Très bien!
In response to Trump’s trade war tariffs on aluminium and steel, the EU introduced counterbalancing tariffs on US exports of whiskey, Harley-Davidson motorcycles and other things. Following Brexit, the UK rolled over the EU’s counterbalancing tariffs, but has now opened a consultations asking the British people what items in particular they would like to see tariffed.
Contribute here, and remember: the more likely the tariffs are to annoy very vocal and politically influential US industry groups, the more likely all of this tariff business will go away. That’s the theory, at least.
Ohhhhh it’s coming. And it’s going to be chaos. More on this next week (for paid subscribers *cough*).
As ever, do let me know if you have any questions or comments. And do join me, Dmitry and Anna on Monday at 19:30 UK time.
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