Most Favoured Nation: Swiss-Style Agreement

CPTPP as ratchet, digital sovereignty, tariffs and Switzerland

Welcome to the 75th 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.

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This week UK Trade Minister Greg Hands published an op-ed for Conservative Home extolling the benefits of CPTPP and the (domestic) case for UK accession.

The context here is that the UK had hoped to accede to CPTPP by the end of the year – the next round of negotiations in scheduled for December – but doing so is proving a bit more difficult than anticipated due to … in no particular order:

• The Canadians being a pain;

• The domestic backlash from farmers to further trade liberalisation creating political problems for Conservatives in the south east of England;

• And China’s proposed accession making the existing members reluctant to grant the UK any derogations from the CPTPP rulebook in case it sets an unhelpful precedent.

Anyway, as well as listing lots of reasons the CPTPP is great, Hands made an argument that is quite often inferred, but rarely made explicit: that joining CPTPP would make it more difficult for a future Labour government to reintegrate the UK with the EU.

He writes:

I have always believed that Labour could seek to join a customs union with the EU. I doubt they would seek to join the Single Market, given that would inevitably mean having to sign up to free movement of people. But it was official Labour policy before 2019 to seek a customs union with the EU – indeed, it was Sir Keir Starmer himself, as Shadow Brexit Secretary, who formulated such a policy.

Despite occasional protestations, I do not believe Labour has ever given up on this goal. Joining an EU customs union would invalidate most, if not all, of our independent trade policy. Labour might then seek to fold our UK-Australia and UK-New Zealand agreements into wider EU ones (although the EU has yet to finalise one with Australia).

But Labour would have to pledge to withdraw the UK from CPTPP, which would create a new trade disruption for this country and would certainly anger some of our closest allies around the world, like Canada, Japan and Australia.

If you look through the twitter responses to his piece you will see that this argument has upset quite a few people. Understandably. In the UK, the idea that the current government can bind the hands of a future one is something that is viewed as not the done thing.

But the thing is … Hands is kinda right. One of the main arguments in favour of the UK rushing through new free trade agreements is that it does indeed make rejoining the EU more difficult. And if you are worried about a future government rejoining the EU then you should do all you can to make it more difficult, obv.

This is not to say you cannot exit these new agreements and rejoin the EU (or customs union, whatever) if you want to [you can], it’s just that you have to be prepared to potentially annoy off a lot of other countries when doing so. And the more free trade agreements you have with countries that don’t also have equivalent deals with the EU, the more countries you risk annoying off when you jettison them to re-enter the EU.

Of course this isn’t an exact science, and the stickiness of FTAs lives on a spectrum. Maybe the UK is willing to throw Australia and New Zealand under the bus (again), but would it be willing to do the same to, say, the US? Not so sure.

If this all sounds awful undemocratic then I’m sorry to inform you that binding the hands of future governments is pretty much the point of free trade agreements. Take, for example, the UK’s WTO obligations which bind the UK’s tariff on imported cars at a maximum of 10%. A future government might want to hike this to 50% for *reasons* but the obligations made by a past government say it can’t. Or at least it can’t without some quite explicit consequences and retaliation from other trade partners.

The same is true of, say, the digital services commitments in UK free trade agreements. In the UK-Japan agreement both countries not to levy tariffs on cross-border data flows. So what if a future UK government wants to levy tariff on cross-border data flows? Well, like, it could. But again, there would be consequences.

So yeah, errr, welcome to trade policy.

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Digital Sovereignty

For those of you interested in the EU’s digital sovereignty agenda/attempts to force digital companies to do things onshore/attempts to unilaterally create a global rulebook for digital firms [delete as appropriate], the Atlantic Council has a very useful new report out setting out the background, the context, and where it will probably go from now.

I guess the big question for me is whether the EU’s attempts to, for example, make it difficult for commercial data to be stored outside of its territory will spill over into trade retaliation from aggrieved countries. We’ve already seen a few close calls in this space — think the proposed US tariffs following EU attempts to impose a digital services tax — so my suspicion is that it could. Mainly because everyone suspects that the EU measures have an ulterior motive … see:

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YOU ARE WELCOME

A few weeks ago Most Favoured Nation asked a very important question: Why has the UK not announced its 2022 tariff suspensions yet? These suspensions allow certain imports of to enter tariff-free, so long as there are no domestic alternatives (there are other criteria too, but that’s the main one).

Well it turns out that UK Chancellor Jeremy Hunt is an avid reader of MFN, and our prayers have been answered. As part of his Autumn Statement he said:

To further spur competition, I have listened to requests from businesses and today I’m removing import tariffs on over 100 goods used by UK businesses in their production processes, from car seat parts to bicycle frames.

Go Jeremy.

The full list of suspensions can be found here [ODT file].

It’s still not entirely clear why this process took so long, or why some imports were granted suspensions but others weren’t. But anyway. Go MFN.

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Switzerland

The past couple of weeks the UK has been busying itself signing Swiss-style deals with … Switzerland.

(I know you were thinking that I’d be writing about that thing where a UK minister said they wanted to improve economic relations with the EU and mentioned the Swiss agreement and everyone in the UK for some reason decided to take it literally and write long twitter threads about the intricacies of Switzerland’s relationship with the EU rather than just accept it to mean “a slightly better deal than now'“, but I CBA.)

These include the extension of the UK-Switzerland Services Mobility Agreement, which allows UK professionals to operate in Switzerland for up to 90 days a year without the need for a work permit [note: this is quite a cool arrangement; we should do more of this kind of thing]

AND

a new UK-Switzerland deal covering mutual recognition of conformity assessment.

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As ever, do let me know if you have any questions or comments.

Best,

Sam