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In the third (!) ever edition of MFN I flagged that a number of the free trade agreements the UK rolled over after Brexit included time-limited rules of origin provisions.
These provisions allow for extended cumulation with the EU, which in English means that UK exporters can continue to count EU-sourced inputs as “British” for the purpose of demonstrating their exports are British enough to qualify for the new free trade agreements. Without this extended cumulation, lots of UK exports would not qualify for tariff-free trade. This is particularly true for, say, automotive exports where the rolled over free trade agreements usually require around 55% of the value of a car to have been created locally to qualify for preferential tariff treatment. (Note: estimates vary, but for the most part the work done on exported cars in the UK amounts to less than 55%, with most of the value originating in wider-Europe.)
See this table for an overview of when the various clauses expire:
Anyhow, today the UK announced it is launching a consultation prior to launching the renegotiation of its trade deal with South Korea. If you would like to submit a response, click here.
I imagine this will lead to improved digital provision, and perhaps a few other goodies. But in reality, the UK will have one true offensive interest, and one true offensive interest only: ensuring the extended cumulation continues. [While crossing its fingers and praying the South Koreans won’t start asking for the same but with China … again.]
Chile Out
On the subject of renegotiations, the EU has [finally] concluded the renegotiation of its free trade agreement with Chile. Congrats!
Some of you might remember that this was held up because of an ever-expanding Chicken tariff-rate quota. To recap, I wrote this a year or so ago:
Out in the cold
On the subject of deals not getting done. I found myself wondering why the negotiation to modernise the existing EU-Chile FTA is being held up. It’s not like it’s a new deal. Surely it can’t be so hard. So I asked around, and apparently it is hard because the French are unhappy with a provision in the existing deal:
The OG EU-Chile FTA contains a poultry tariff-rate quota that expands by 10% of the original quantity, every year, forever. And ever. And ever.
There’s also another TRQ that does the same for cheese and garlic, but by 5% of the original quantity annually. For ever. And ever. And ever.
Heh.
I’m not saying it’s slightly funny. But I’m also not saying it’s not slightly funny either.
And … *drumroll* … this issue seems to have been resolved. As per the EU’s summary of the agreement [emphasis added]:
For meat quotas, the unlimited annual growth factors that currently apply to those tariff rate quotas will be eliminated at entry into force, while the EU will increase the existing quotas by 18 000 t for poultry meat (phased-in in two equal shifts, one at entry into force and one after 3 years), 9 000 t for pork, 4 000 t for sheep meat and 2 000 t for beef. These tariff quotas regroup all tariff lines which were under discussion for those specific sectors. For garlic, the existing quota will be increased to a total amount of 2 000 t and the annual growth factor will also be eliminated.
So no more unlimited annual growth, but at the cost of a big upfront lump-sum payment. Everyone is happy.
The EU is still cross that the US’s Inflation Reduction Act discriminates against EU-made electric cars, batteries, and other things. But — following some chats between Macron and Biden and the discussion alongside the Trade and Technology Council – talks of a trade war do seem to have quietened down slightly.
[The most probable outcome is that the EU does a bit of its own subsidising with probably WTO non-compliant local content requirements. But this does raise an interesting question re: whether all of the other countries that also currently annoyed with the US will decide to take out their frustration on the [slightly] less scary EU. The UK, for example, would be pretty well placed to bring a case against the EU via the Trade and Cooperation Agreement if it felt EU measures unfairly discriminated again British firms or breached the agreements subsidy commitments.]
And let’s be clear, despite all of the recent furore, it’s not like the US and EU aren’t CONSTANTLY arguing about things like this. You may remember the recent threats by the US to levy tariffs on French handbags because of its attempts to apply a digital services tax (that kinda obviously discriminated against US firms) and mean tweets.
Also, the US remains not particularly happy with everything the EU is doing on digital such as the digital markets act, digital services act and the burgeoning cloud sovereignty agenda.
U.S. diplomats and lobbyists are keen to ensure that there is some ‘burden-sharing’ amongst allies, i.e., that the Chinese semiconductor market will not be overtaken by third-country competitors. But recent measures by the U.S. on semiconductor-related items are not bans, but export controls similar to those that are already in place in Europe, who has listed lithography equipment as a dual-use item since 2014. Policies are also subject to both treaty commitments and close coordination between the E.U., the U.S. and Japan.
The matter ultimately comes down to trust and industrial competition: Prior to the recent updates, U.S. export controls targeted Dutch lithography equipment but remained laissez-faire on half a dozen equally critical production steps where U.S. firms happened to dominate. In the past two years, U.S. market leaders have uniquely boosted their sales in China by over $5 billion. During the same period, Chinese-state-owned SMIC succeeded in breaking the critical 7nm chip manufacturing barrier, not by using Dutch EUV equipment, but ‘dep and etch’– an alternative method relying on U.S. tools.
Ultimately, the U.S. cannot expect the EU to impose bans which the U.S. itself has not done; Nor can it expect the Netherlands to cede its sovereign decision-making power. Both O-RAN and export controls are just two examples of how successive U.S. administrations have used the China threat as a pretext to neutralise European technology while promoting its own (and often inferior) alternatives. Rightly or wrongly, the U.S. narrative portraying a “common China threat” suffers from severe credibility issues in European capitals as a result.
Man of Steel
Remember that time the UK rolled over a load of safeguard tariffs on Chinese steel, investigated whether it still needed them, decided it didn’t, but then decided to illegally keep them anyway, leading to Boris Johnson’s ethics adviser resigning and eventually the resignation of Boris himself? Fun times.
Anyway, the EU has just opened a review into the OG steel safeguard duties that started this problem in the first place.
Quite a lot of other stuff happened this week, including the EU escalating its WTO cases on Chinese treatment of Lithuanians goods and high-tech patents, the US making a proposal on carbon tariffs that the EU will need to pretend to engage with while carrying on as before with CBAM, 14 WTO members circulated a letter complaining about the EU’s new deforestation rules, and an EU official told carmakers that the accommodating EV rules of origin in the TCA would not be extended past the 2024 deadline (but I don’t necessarily believe them) … but I have run out of time, alas.
As ever, do let me know if you have any questions or comments.
