Most Favoured Nation: Suspend My Tariffs!
Medical device regulation, export controls, tariff suspensions, and the WTO appellate body is broken, get over it.
Welcome to the 77nd 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.
Regulation is complicated. Which is one of the reasons why the UK’ proposed Retained EU Law Bill, which would see all inherited EU law fall away by the end of 2023 unless the relevant government departments make an active decision to keep or tweak it, is so silly. If you’ve got a good idea on how to regulate better then do it, don’t create unnecessary business uncertainty just because you’ve decided that without a deadline you can’t be trusted to change anything.
Regulation is particularly complicated when viewed through the international lens, where decisions made by others can negatively (or positively) impact your own ability to regulate, and set rules for your home market.
Just over a year ago I wrote a piece for CER with Prof Derek Hill on the challenges facing the UK when it comes to regulating medical devices post-Brexit.
Here there are three separate, but related issues:
The EU has introduced new rules for medical devices. The Medical Device Regulation (MDR) replaced the old Medical Device Directive (MDD), and ultimately requires all medical devices on the EU market to be re-certified against the new criteria by May 2023/24 (depending on the type of device). The MDR’s implementation is not going well due to a shortage of notified bodies able to provide the certifications and the high costs of re-certification leading some manufacturers to decide not to bother. This could result in a number of medical devices no longer being available to European patients.
Due to COVID, the UK never got round to introducing MDR while in the EU/transition period, so is therefore still running off continuty MDD rules. To bridge the gap between MDD and introducing its own UK-specific regime for medical devices, the UK continues to recognise EU certifications until (at least) July 2023. This means that, in practice, lots of medical device producers have still not re-certified their product in the UK (and may never do if the market size is deemed too small relative to cost).
The EU MDR implementation challenges mean that not only might EU patients lose access to key medical devices, UK patients might too, if there is no longer a valid EU certification to recognise and the product has not been separately certified in the UK.
So despite the UK having fully extracted itself from EU rule making, with the sovereign ability to regulate its own economy as it sees fit, in practice the UK still has a vested interest in the EU extending its own deadlines for MDR implementation.
As I said, regulation is complicated.
A really big deal
As briefly discussed in last week’s newsletter, the US’s new semiconductor and advanced computing export controls are a really big deal.
I thought it might be useful to break down the four different components … with the aid of drawings.
New product-specific controls. The US has added a load of new items to its commerce control list. These will all now require export licenses when exported from the US.
They include specified integrated circuits ("ICs"); specified semiconductor manufacturing equipment and "specially designed" parts, components, and accessories thereof; specified computers, electronic assemblies, and components that contain ICs; and, specified software "specially designed" or modified for the development or production of computers and related equipment, electronic assemblies, and components. So lots of stuff.
New general license requirements. The US has created new license requirements for pretty much any chips that could be used to make supercomputers in China, anything with a supercomputing end-use in China, and anything that could be used to make semiconductors in China. So if it’s high-tech and could be used to make advanced computers/semiconductors you’re probably caught.
Expanded Foreign Direct Product Rule (FDP). The FDP gives American sanctions extraterritorial effect. Foreign products that incorporate US-originating tech and equipment are thus covered by US export licensing requirements. In essence, the extension means that foreign producers of advanced computing and semiconductor items will probably have to get a US export license before whenever there is “knowledge” they might end up in China.
4. US Person Restrictions. If you’re a US citizen, green card holder or company (including foreign branches) then you’re not allowed to “support” the development or production of high-tech semiconductor manufacturing in China … even if you live and work in China. This is the big one.
So basically, no one with anything to do with the US is allowed to help China acquire or make advanced semiconductors. (And you really don’t want to mess up the compliance …)
Where are the tariff suspensions?!?!?
Over a year ago (July 2021 deadline), the UK government asked its companies to submit requests for tariff suspensions.
Basically, if you meet the following criteria, your imported product might be eligible for a tariff cut:
applicants should have been based in the UK or Crown Dependencies
all completed application forms needed to be sent to tariffsuspensions@trade.gov.uk no sooner than 1 June 2021, and no later than 11.55pm on 31 July 2021
UK and Crown Dependency businesses needed to demonstrate that they would have saved at least £10,000 in duties if the suspension had been in force in 2020 (2019 data could have been provided if businesses had been impacted by COVID-19)
the request should not have been for a product that is traded between related parties (defined in Regulation 8(4) of the Customs Tariff (Suspension of Import Duty Rates) (EU Exit) Regulations 2020), in circumstances which would mean other UK or Crown Dependency businesses cannot benefit from a suspension
the product or substitutable products could not be produced in the UK or Crown Dependencies, only produced in limited quantities, or production was temporarily insufficient (products other than raw products were taken to be produced in the UK or a Crown Dependency if they are partly or wholly manufactured in the UK or a Crown Dependency. Simple assembly operations, repacking products, or preparing products for shipment or transportation would not normally be considered production processes)
the product needed to be used in a production process or there needed to be a demonstration of a specific temporary need for the product
You can find a list of the requests made here — they range from car parts, to cigarettes to very strong rum.
For some reason … and despite claiming there would be another window for application this year, the government still hasn't made a decision on which tariff suspensions to grant and which to reject. Tardy.
In the meantime, the UK is continuing to apply inherited EU suspensions until 31 August 2024.
Reforming the WTO
As most readers of this newsletter will know, the WTO appellate body (AB) is broken. The US refuses to appoint new members, which in practice means the WTO’s dispute settlement process no longer has an appeals function. Which means that … the US can get away blatently breaching its WTO obligations by introducing obvious local content requirements for electric vehicles in its Inflation Reduction Act and, ultimately, no one can do anything about it. (At least not via the WTO.)
Countries that like rules-based-trade have created an alternative called the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), but the US (nor the UK, for some reason) is not a member.
Anyway, many incredibly smart people have spent years of their life coming up with hundreds of new wheezes to magically fix the WTO dispute settlement process, and guys, its time to stage an intervention. Stop. The AB is broken because the US wants it broken. One day the US might change its mind. But until that day, nothing you say or do will put the AB together again. So just stop. Stopping’ll make you feel better.
You can then focus on more exciting things, like rules of origin.
As ever, do let me know if you have any questions or comments.
Best,
Sam