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Most Favoured Nation: India Strikes Back
Impacts of devaluation, India strikes back, flattery and high standards
Welcome to the 68th edition of Most Favoured Nation. This week’s edition is free for all to read. If you would like to receive top quality trade content in your inbox every week, please do consider becoming a paid subscriber.
As you may have noticed, UK sterling took a bit of a hammering this week [before recovering] due to **insert reason of choice**.
Every time the pound weakens against the dollar or euro, someone on the internet will say something along the lines of “this is fine because it will make our exports more competitive”.
At a superficial level, this is exactly what should happen. If you are an American buying £100 worth of British stuff now costs you fewer dollars than it did a year ago. Bargain. Maybe you can now afford to buy greater quantities of stuff now than you could before.
But in practice it is not quite so clear cut. For one, as I tweeted earlier in the week, lots of British stuff has foreign stuff in it. And a weak £ means that the foreign stuff being put into the British stuff is now more expensive. Which means that the British exporter might need to put their prices up to retain their profit margin, negating the impact of a weaker pound.
Another issue is just how things are sold in the real world. Quite often companies will agree long-term contracts, so currency movements don’t necessarily impact the quantities sold.
Additionally, if you’re a UK exporter it is quite probable that your contract is priced in a foreign currency.
So you have two options:
You could renegotiate the contract so as to charge your buyer less per unit in the hope they buy more.
Leave the contract exactly how it is and pocket the additional profit generated when you convert the foreign currency back into £.
Tough choice. But two is intuitively more appealing. Over time this extra profit could of course be invested etc. which would be good … but it doesn’t automatically mean more exports.
Anyway, the real world is complicated.
Every action has an equal opposite reaction
Long-term readers of MFN will know that the UK’s post-Brexit approach to trade remedies has been … rocky.
First the UK tried to introduce a new, evidence-based, approach to trade defence, then it jettisoned that approach as soon as the domestic steel lobby was loud, then the Boris’s ethics adviser resigned for reasons that may or may not have been related to a trade remedies decision, and then the UK decided to illegally extend the application of safeguard duties on imported steel for another couple of years.
So yeah, now India –whose steel industry is hit by these UK safeguard duties – is threatening to retaliate by introducing its own rebalancing tariffs on, among other things, UK blended whisky.
The timing of this announcement is a little odd, given that the UK and India are in the final stages of wrapping up negotiations of a trade deal. [There’s also a more technical reason due to a legal deadline imposed by Article 8.2 of the WTO Agreement on Safeguards.] But then again, if you know your negotiating counterpart (the UK) is desperate to get a deal done by Diwali, why not put the screws on to try and eke out further concessions.
My assumption is that, in parallel with the FTA, the UK and India will now agree something on steel that means the whisky tariffs never materialise. But this is the sort of shakedown you leave yourself vulnerable to if you go about breaching your international obligations.
Imitation is the sincerest form of flattery
Some of you may be aware of the DG Trade twitter account’s obsessions with wacky cartoon graphics. [Declaration of interest: I was the first non-official to be gifted a jazzy dancing DG Trade avatar.]
See, for example, this absolutely insane video in which enforcement chief Denis Redonnet fights a rat.
Anyway, in a sure sign of thawing political tensions, the UK trade team in Singapore has decided to join the EU in the cartoon diplomacy space:
His main points are as follows:
In February 2022, the European Commission’s European Strategy on Standardisation outlined how they want to downgrade the role, including removing the voting rights of experts from U.S. and other foreign firms and thereby preventing them from playing a key role at the European Telecommunications Standards Institute (ETSI), one of three key European standards bodies. It is exactly this open and meaningful engagement with foreign technical experts that allowed ETSI to have the type of influence over global technology policy that European policymakers so dearly want. Yet Europe is undermining ETSI due to unfounded fears about “undue influence” foreign stakeholders have at ETSI, despite ETSI itself claiming that these fears are purely hypothetical and unlikely.
In mid-2022, a revised European Commission request for radio equipment cybersecurity standards dropped ETSI, only tasking the European Committee for Electrotechnical Standardization (CENELEC), one of the other European Standards Organizations (ESOs). This is another way to downgrade the role of experts from foreign firms at ETSI, as CENELEC is made up of representatives from government standards bodies. This is despite the fact that CENELEC has relatively limited expertise in developing cybersecurity standards when compared with ETSI.
In July 2022, the European Commission’s Directorate-General for the Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) issued guidance for the new radio equipment directive experts groups that limits representatives to those from EU-headquartered and controlled firms. This will obviously impact inclusiveness, but also the quality of specifications. For example, at that time, ETSI was represented at the radio equipment expert group by its vice chair (who is from Intel’s European office) and DIGITALEUROPE was represented by individuals from Sony and Samsung.
In July 2022, a European Parliamentary committee approved amendments to European standardization law (in enacting restrictions on experts from U.S. firms) that lumps the United States in with China in stating that their firms have an impact on European standards and do not share the values and interests of the EU. Furthermore, it explicitly targets the role of foreign national standards organizations in changing voting requirements such that it only really depends on whether a proposal has the support of the majority of representatives from EU member states. In essence, the European Commission is intentionally using “values” and “interests” to enact discriminatory and exclusionary standards policy without any real justification.
In September 2022, a draft European Commission decision to establish the expert group for the High-Level Forum on European standardization allowed the chair to restrict participation in sub-groups “dealing with critical and sensitive policy subjects that are directly relevant for the security of the Union to entities and individuals not subject to control by a third country acting either directly or by way of measures addressed to a third-country entity.”