Most Favoured Nation: Rice, Rice, Rice!
UK-India negotiations, CBAM, Elgin, sheep meat and statistics.
Welcome to the 70th 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 long-term readers will know, this newsletter has a long-term fascination with rice. [Disclosure: I occasionally provide professional advice to people working in the rice sector.]
And with the India-UK FTA negotiations closing in on the UK’s original self-imposed Diwali deadline [that will now slip because setting yourself an arbitrary deadline obviously gives the country you are negotiating with additional leverage cf all of the pretend Brexit deadlines], it’s interesting to think through the potential ramifications for one of the UK’s less well-known food industries.
As a partial function of relatively high tariffs on imported processed (milled) rice, the UK has a successful rice milling industry. We import raw rice from India, Pakistan, Thailand and elsewhere, process it, and then sell it both at home and (a little bit) internationally.
This creates two issues for UK trade negotiators.
The first-order issue is straightforward. A significant liberalisation of import tariffs for milled (mainly long-grained) rice, could call into question the viability of UK mills (quite a few of which are in Conservative constituencies).
The second order issue is less straight forward, but also more interesting.
In most countries, imported rice is subject to quite stringent import controls. Scroll down on this webpage to see the US’s requirements, for example. But the UK’s regime is lighter touch, with relatively little control at the point of import. Because much of the rice we eat in the UK is processed locally, the burden of ensuring that the imported rice is high quality and safe has fallen to businesses based here. Control has effectively been outsourced to the UK private sector, which does the monitoring and due diligence throughout the supply chain, with occasional checks by regulators.
One risk is that if the tariffs on milled rice are significantly liberalised, the UK would then be required to tighten up its border controls to ensure nothing dangerous gets in. The cost savings of tariff-reduction could lead to government needing to spend a lot more money policing the border in order to ensure nothing bad is ending up on UK shelves.
We saw this sensitivity recognised in the UK-Australia free trade agreement, where imported long-grained milled rice retained protection from full tariff liberalisation (unlike most other agrifood sectors) in the form of a small, 1000 tonne per year tariff-rate quota.
Same again?
CBAM corner
We haven’t checked in on the EU’s CBAM for a little while. As it stands the three EU institutions are huddling together, looking to work out a compromise.
With thanks to the Jacques Delors institute for an excellent paper, here’s an overview of the different positions:
For me, the big question is on whether export rebates are included or not. The Commission does not want this, fearing allowing exporters to claim back the carbon-cost of production would undermine the environmental rationale of the measure. But EU exporters can be an influential bunch … and they do kinda have a point that while the CBAM would guard against dirty competition in the home EU market, it doesn’t prevent them from being [unfairly] outcompeted in other foreign markets that do not have similar pricing mechanisms.
Utilising those preferences
The Commission has published a new report looking at how successful EU trade agreements have been in boosting trade.
And goods news!
The press release says [emphasis added]:
Making the most of trade agreements and their effective implementation is becoming increasingly important: for example, 44% of the EU's trade took place under preferential trade agreements in 2021, with this expected to rise to 47.4% with the incorporation of agreements currently under adoption or ratification.
Exports from the EU to preferential partners (minus the UK) grew more (16%) than EU exports to all trading partners (13%) between 2020 and 2021.
And this is all true.
However … [and this is really quite a little “however” in the grand scheme of things], I did that silly thing of actually reading the report. And while it is true that “exports from the EU to preferential partners (minus the UK) grew more (16%) than EU exports to all trading partners (13%) between 2020 and 2021” it is also the case that, at 21.3%, trade with non-FTA partners grew even faster.
Weird. So what's going on? Some of this is just a function of who the EU has FTAs with and who it does not: its FTAs tend to be with countries the EU already has pretty strong trading relations with, so the scope for additional growth is smaller than with new markets starting from a lower base.
But still, statistics ey?
Always a trade angle
For a really long time I was under the impression that the Elgin marbles were tiny little round marbles, rather than big ol’ sculptures. But anyway, that’s not really relevant here. What is relevant is — if they weren’t already controversial enough — it turns out that Lord Elgin is a tariff dodger!
As per the Guardian:
Lord Elgin imported the Parthenon marbles into Britain without paying customs tax after the foreign secretary intervened on his behalf, newly discovered letters suggest.
The documents, dating from the early 19th century, show that after he controversially stripped them from the frieze of the Parthenon in Athens, Elgin was helped to bring huge shipments of the sculptures to Britain by the senior minister, who “knew what Elgin was up to”, according to a historian of the period.
Outrageous!
Sheep meat
This tweet from DEFRA upset a lot of people on twitter:
And I’m not really sure why. I get that the press release is a bit annoying, but this is what good trade policy looks like! The UK — and yes it was the UK: the general restriction was lifted at (then)EU level, but UK officials still then had to convince the US to allow exports at the (then)member-state level — has unlocked new opportunities for its exporters by bringing down regulatory barriers.
So if you’re going to moan (sometimes legitimately) about the performative nature of much of UK trade policy, you can’t then moan when it actually does something good. Or rather, you can moan but it’s not very fair.
Other stuff
Electronic trade documents bill. The bill has landed in Parliament. When passed it will remove the obligation for certain business-to-busienss trade documents such as bills of laden to be paper-based. Which I think everyone can agree is a very good thing to do.
Adequacy. “President Biden signed an Executive Order on Enhancing Safeguards for United States Signals Intelligence Activities (E.O.) directing the steps that the United States will take to implement the U.S. commitments under the European Union-U.S. Data Privacy Framework.” Nice!
Return of the Mac. To the relief of officials in the Department of International Trade, Greg Hands is back.
Best wishes,
Sam