Hello! Welcome to the fifth edition of my fortnightly newsletter, Most Favoured Nation. Do let me know what you like, what you don’t like, and what you would like to see more of. And if you haven’t yet subscribed, please do.
I will once again be joining Dmitry Grozoubinski and Anna Isaac to discuss trade shenanigans over at Dmitry’s twitch feed – tune in here at 19:30pm UK time on Monday.
From down under
The UK’s trade talks with Australia are back in the news this week. Reportedly there is some disagreement between British ministers over how much agriculture liberalisation to offer Australia. Twitter quickly picked sides, and now (I exaggerate slightly for comic effect) there are two opposing teams: team ‘why do you hate British farmers’ vs team ‘why do you hate poor people having cheap food, you snob’.
Both positions are born of the same premise: that dropping tariffs on food from Australia will lead to lots of cheap Australian food hitting the UK markets. In this scenario, food prices in Britain fall (yay/boo; depending on your team), and uncompetitive British farmers lose out (yay/boo).
But what if the premise is just kinda … wrong? What if dropping tariffs on Australian food doesn’t lead to a huge influx of imports from Australia because Australian exporters are currently pretty happy selling all over Asia, and what if the tariff reductions on the most sensitive food products would probably be phased in over 10/15 years anyway, and what if Australian exporters want to sell their higher end food products to the UK not the cheap stuff, and what if Australian imports are just as likely to displace EU food imports, and what if companies don’t always pass on tariff savings to consumers and the evidence suggesting tariff reductions lead to consumer prices to fall is inconclusive anyway.
Anyway, if any of the above is true … then maybe we’d be having a different conversation.
AMERICA!
The world: “Now that Trump is out of the White House we can safely say that American protectionism is over and …”
Biden:
The world: “Oh no.”
(If you were wondering who will be in charge of all things Buy American at the White House, that would be Celeste Drake, who some in Europe might remember from her [not being a very big fan of] TTIP days.)
You and whose army?
If you spend enough time talking about Brexit on twitter (guilty), at some point someone will ask you whether the UK’s decision to apply a light touch approach to checks on imports from the EU breaches its WTO obligations. (Because the UK is unfairly discriminating in favour of imports from the EU.) There are some people who really really want this to be the case and for the WTO to invade, or something. My usual answer is “maybe, but who cares – it would take years to bring and conclude a dispute and the measures are (supposedly) temporary anyway”.
But with the caveat that my answer is still the correct one … if you really want to read more about this, Geraldo Vidigal ran a fun dispute panel simulation with his students, looking at the WTO-consistency of the UK’s decision to delay checks on food products coming from the EU. Full thread in the tweet below.
TL;DR: the student panel ultimately decided to “suggest” that the UK open up its SPS equivalence regime (allowing for checks to be waived) to other WTO members. More hypothetical dispute settlement exercises, please!
Trade in computer games
While the entire world/some people in and around Westminster and me are talking about food tariffs, like 19th century chumps, I keep thinking about this House of Lords submission by MFN fan favourite Nigel Corey, looking at barriers to digital trade, and particularly trade in video games:
Forget about food tariffs this is the future of trade policy.
The Northern Ireland bit
Last weekend the Belfast News Letter and the Times published pieces saying that the Northern Ireland protocol means that a cancer treatment approved for use in Great Britain would not be approved for use in Northern Ireland, where it required EU approval. The European Commission hit back saying they’d got it all wrong.
So who is right?
On balance, the Belfast News Letter and the Times. They picked a bad example – because the cancer drug is already authorised in the EU for a different treatment, it can be used off-label in Northern Ireland – but the substantive issue is correct: Following Brexit, new medicines in Northern Ireland require a separate (EU) authorisation from new medicines in Great Britain. This could lead to Northern Ireland having access to a new medicine after the rest of the UK, or before the rest of the UK, depending on which regulator authorises the medicine first.
Also, as of January 1st next year (unless the EU and UK agree a work around, which they might), medicines being placed on the Northern Ireland market will need separate batch certification and release from those being placed on the market in Great Britain.
See this excellent thread explaining this issues in more detail:
Anyway, all of this has been known for ages – it is written down in the text of the Northern Ireland protocol. And it was certainly known by the British officials and politicians when they signed up to it.
Preference erosion
Every time a country strikes an additional trade deal, the value of its existing trade deals falls slightly for foreign exporters using them. Or, to put it another way, if you are the only country that has a trade deal with, say, China, your exporters not only get to compete on improved terms with domestic Chinese companies, but also on better terms than any other countries’ exporters selling into the Chinese market. First mover advantage and all that. But the moment China signs a trade deal with another country, that country’s exporters are then able to compete in China under the same market conditions as yours, so your advantage diminishes somewhat. This is particularly true if the new trade deal grants greater access than the old one. In trade lingo this is known as preference erosion.
The fear of preference erosion can lead to some fun trade politics. In 2019 the Canadians broke off trade talks with the UK after the UK published its no-deal tariff schedule, which would have seen tariffs unilaterally removed on most imports into the UK. The Canadians argued (much to the UK’s annoyance) that there was no point doing a trade deal with the UK, and offering UK companies preferential access to the Canadian market, if the UK was just going to drop tariffs for every other country in the world for free. [The UK has since introduced a different tariffs schedule, and made up with the Canadians and signed a continuity trade deal].
Anyway, fear of preference erosion partly-informs some of the negotiating dynamics around the UK’s trade talks with Australia and New Zealand. While both Australia and New Zealand would like to be first (Australia will probably win) to sign a deal, New Zealand is worried that if it goes first Australia will then go on to get better terms, and vice versa. Both New Zealand and Australia are then jointly worried that they’ll sign a deal with the UK, and then the UK will go ahead and give a load more access to the US. (For its part, some in the UK are worried that if it gives Australia and New Zealand really good terms – for example duty and quota free access – then everyone from Brazil, to India to the US will ask for the same. Such is life).
I’m not particularly sure where I’m going with this, but yay, trade negotiations.
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As ever, let me know if you have any questions or comments. And do join me, Dmitry and Anna on Monday at 19:30 UK time.
On the point of discrimination and SPS checks on EU-origin products, the premise is usually wrong. Non-discrimination (in the MFN sense) is not relevant. The governing principle, as for all risk-based public policy measures (usually under exceptions, which is technically what the SPS Agreement is anyway), is that of necessity: see Art 8/Annex C on checks (https://www.wto.org/english/tratop_e/sps_e/spsagr_e.htm#top). It may be that it is unnecessary to impose checks on non-EU imports. And it may be that not imposing checks on EU imports shows that this is unnecessary (if for instance the risks are the same). But necessity is the way to think about it, not MFN discrimiantion per se.
How would you square the quote from Biden about Buy American with US participation in the WTO Government Procurement Agreement? For contracts outside the GPA he can presumably do what he likes - but surely the GPA means the US can’t reject bids from non-US firms from other GPA-participating countries purely because those firms aren’t American?
On the point of discrimination and SPS checks on EU-origin products, the premise is usually wrong. Non-discrimination (in the MFN sense) is not relevant. The governing principle, as for all risk-based public policy measures (usually under exceptions, which is technically what the SPS Agreement is anyway), is that of necessity: see Art 8/Annex C on checks (https://www.wto.org/english/tratop_e/sps_e/spsagr_e.htm#top). It may be that it is unnecessary to impose checks on non-EU imports. And it may be that not imposing checks on EU imports shows that this is unnecessary (if for instance the risks are the same). But necessity is the way to think about it, not MFN discrimiantion per se.
How would you square the quote from Biden about Buy American with US participation in the WTO Government Procurement Agreement? For contracts outside the GPA he can presumably do what he likes - but surely the GPA means the US can’t reject bids from non-US firms from other GPA-participating countries purely because those firms aren’t American?