Most Favoured Nation: Never Ever Tweet

Twitter = tariffs, and other things.

Hello! Welcome to the second edition of my fortnightly newsletter, Most Favoured Nation. Thank you for all of the kind comments so far, they are much appreciated. And if you haven’t yet subscribed and told all of your friends about it, please do.

(Also, as if this isn’t enough trade content for you, next week I will be joining Dmitry Grozoubinski and Anna Isaac to discuss trade shenanigans over at Dmitry’s twitch feed – tune in here 19:30pm UK time on Monday. If it goes well, we’ll make it a regular thing. If it doesn’t, we shall never speak of it again.)

Never ever tweet. Ever.

A couple of weeks ago the new, cuddly, Biden administration announced it was going to continue its Section 301 investigations into the digital services taxes (DSTs) of a number of its trading partners, including the UK, Italy, India and Spain (although it dropped investigations into the DST’s of the EU and a few others … presumably because they don’t exist).

Among other things, the US argues that all of these digital taxes are unfair because they primarily target US tech companies. Their evidence for this (other than the fact they are quite obviously designed to target US tech companies)? A list of statements from politicians saying their DST is designed to target US tech companies. These quotes are all taken from the US’s DST section 301 report into the UK’s DST:

Here’s Phil Hammond, the then Chancellor of the Exchequer [emphasis added by USTR):

“This will be a narrowly-targeted tax on the UK-generated revenues of specific digital platform business models. It will be carefully designed to ensure it is established tech giants – rather than our tech start-ups - that shoulder the burden of this new tax.”

Boris is on it too:

““[o]n the digital services tax, I do think we need to look at the operation of the big digital companies and the huge revenues they have in this country and the amount of tax that they pay. . . . We need to sort that out. They need to make a fairer contribution.”

But the pièce de résistance is … Labour MP John McDonnell (????) who in November 14, 2019, tweeted that:

“[w]e will pay for this through . . . a new tax on multinationals – so the tech giants like Facebook and Google will pay a bit more. . . .”

I mean, despite it being obvious to everyone at home that the UK’s DST a blatant attempt to get American tech companies to pay more taxes in the UK (or a strategic move to force the US to re-engage with the multinational tax discussions, who can say) … it’s not entirely clear why what Labour backbencher John McDonnell tweets about anything is relevant here. (Although it would be slightly amusing if a John McDonnell tweet led to UK chess sets (don’t ask …) being hit by US tariffs.)

Anyhow, you’d have thought the US would be a bit more forgiving of the tweets of others, given the last few years.

But no. Obviously not.

Danger, danger: high voltage

Last year I wrote about the EU’s plans to use the rules of origin requirements of the EU-UK trade deal to pressurise European electric car companies into onshoring their entire battery supply chain. And would you believe it, that’s exactly what has happened (see the table below).

TCA rules of origin for accumulators, battery cells and electric vehicles

In English, and slightly over-simplified: from 2027 (unless the phase in period is extended, which could happen), for an electric vehicle to qualify for tariff-free trade between the EU and UK 55 per cent of its value must be created in the EU and/or UK AND the battery pack must originate in the EU and/or UK. But for the battery pack to originate in the EU and/or UK pretty much all of the battery cells inside the battery pack must originate in the EU and/or UK. But for the battery cells to originate in the EU and/or the UK, the active cathode material used to make them must originate in the EU and/or the UK.

Got it?

To simplify further: from 2027 for an electric car traded between the EU and UK to qualify for tariff-free trade pretty much everything used to make the battery, other than the stuff pulled directly out of the ground, must have been created in the EU and/or UK. Ambitious.

I’m a bit sceptical about whether the entire battery supply chain can be relocated from Asia to Europe by 2027 (others disagree). But I have recently started receiving emails from companies throughout the battery supply chain asking about EV rules of origin. So someone is paying attention.

How to pronounce CPTPP

See-Pee-Tee-Pee-Pee. I now consider this matter closed.

Barriers to trade, distilled

Long-term twitter followers will know that I am a big fan of the US’s annual barriers to trade report. It lists all of the things American exporters hate about every other country’s rules and regulations. It’s brilliant, and probably the best way to learn about the impact your own country’s rules and regulations have on international trade (from an American perspective).

A quick skim suggests that the big new additions for the EU (unless I missed it last year, which I probably did given I was on paternity leave) are new sections on the digital markets and digital services acts … which the US thinks might unfairly target US tech firms. (I’m going to go out on a limb and say they probably do.)

It also includes repeated gems, like this perma-complaint about American innovative whiskey/whisky makers being discriminated against.

The UK has its own section now, which pretty much just says “see: ‘European Union’, p.s. we hope the UK soon sees the errors of its ways and repents”.

Bring on the futuristic whisky, I say … right up until the Scotch Whisky Association stop inviting me to their Christmas party. At which point I say, “for whisky to be called whisky it absolutely has to have been aged in a barrel for at least three years, you heathens.”

There’s no such thing as too many questions (even 235 of them)

The Labour party has submitted 235 questions to the UK government over its planned accession to CPTPP. While inevitably some of the questions are very politics, they’re pretty detailed and certainly worth reading.  Here’s an example:

“4.39. As part of the UK’s accession process, what is the government’s intended approach to the reactivation of the currently-suspended Article 18.63, which would bring the term of protection for copyright for CPTPP countries in line with the UK’s existing standard?”

Good question!

I suspect the questions about China and its potential accession to the CPTPP [very unlikely, in my opinion, although China does keep bringing it up] could end up causing the most problems for the government. One to watch, and I look forward to DIT’s response.

Transatlantic data flows

Cross-border data flows is one of those issues most trade people know they should know about, but if they’re being honest don’t really know enough about. Myself included [although CER colleague Camino Mortera-Martinez and I did recently write about data flows in the context of the EU-UK relationship]. Anyhow, thankfully, Nigel Cory and Ellysse Dick of The Information Technology and Innovation Foundation do know what they are talking about, and have written an excellent report on EU-US data flows, why they matter to businesses and governments (with lots of case studies), and what needs to be done to improve upon the current precarious situation.

It even has cool graphics:

Figure 8: The data transfers for a (generic) EU-headquartered manufacturing/transport firm with global operations

The rumour-mill

Something is going to be announced when Boris Johnson visits India later in the month and it will be called an ‘Enhanced Trade Partnership’. But I have no idea what Enhanced Trade Partnership actually means. It’s not a free trade agreement, although it could “lead to a potential comprehensive FTA” and will include “considerations on an Interim Agreement on preferential basis”, apparently. And it’s probably going to be launched alongside an early harvest of trade wins. What could they be? Maybe the UK is going to exchange [three-year-aged] whisky for IT engineers? Maybe some companies will re-announce some investments they were going to make anyway? Who knows. I don’t. But I’d like to. So if you happen to know/have a humorous suggestion, please tell me.

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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.

Best,

Sam