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Most Favoured Nation: Transatlantic Trade Cartels > Transatlantic Trade Wars?
Duty suspensions, steel cartels, DEPA, Indonesia, Trade Remedies ... the good stuff. And a bit of personal news.
The US and EU have finally agreed to scrap the Trump trade war tariffs on steel, aluminium and a whole assortment of other things (kinda). Which is nice. They have also agreed to negotiate the “World’s First Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade”.
This has left quite a lot of people on twitter scratching their heads. No one is particularly sure what a carbon-based sectoral arrangement on steel and aluminium trade is. The Whitehouse’s factsheet says the arrangement will:
Be a global first in the fight against climate change and countering distortive economic practices that harm our interests. Never have two global partners aligned their trade policies to confront the threats of climate change and global market distortions, ensuring that trade works to solve the challenges of the 21st century. The deal demonstrates President Biden’s commitment to putting U.S. workers and communities at the center of our trade agenda.
Protect American jobs and industry and provide them with an advantage. American-made steel and aluminum is produced with far fewer emissions than dirtier alternatives made in the PRC and elsewhere. To date, American steel companies and workers have received no benefit for their low-carbon production. Low-carbon steel across all production types —and the workers who make it—will be incentivized and rewarded going forward.
Results in lower prices for American consumers and families by providing relief for American manufacturers who rely on readily accessible, affordable steel and aluminum to make their products. Steel and aluminum are essential components of many manufactured goods, including automobiles, household appliances, building materials, and more.
Demonstrate the climate ambition and global leadership of the Biden-Harris Administration. Steel and aluminum production are two of the most carbon-intensive industrial sectors, accounting for roughly 10 percent of all carbon emissions —comparable to the total emissions of India. A carbon-based sectoral arrangement will drive investment in green steel production in the United States, Europe, and around the world, ensuring a competitive U.S. steel industry for decades to come.
Showcase the strength of the U.S.-EU relationship. The United States and European Union pledged at the U.S.-EU Summit in June to use the size of their collective economies to update the rules of the 21st century. Today’s announcement delivers on that promise and builds on the successful resolution of the 17-year Boeing-Airbus dispute and the creation of the US-EU Trade & Technology Council.
I mean, fine. We all love American jobs, industry, consumers and families after all. But I still have no idea how this is meant to link up with, for example, the EU’s carbon-border adjustment mechanism. Will it lead to US steel exports to the EU being exempt from the CBAM? Will it lead to the US imposing its own CBAM equivalent on imports from elsewhere? Is this in fact a nascent carbon club? Who knows.
Of course, the more cynical take is that this is just a cover for the US and EU to create some sort of transatlantic steel cartel and use climate change as cover for whacking Chinese steel with even more tariffs because something something American steel workers in Ohio.
If so I’m slightly worried it’ll all end in tears.
[Addendum: for those wondering whether the UK will sign up to something similar/join the club … I’d guess yes. Because otherwise the UK’s legacy trade war with the US will rumble on, while their EU neighbour’s will have ended ended. Which could put UK exporters at a slight disadvantage.]
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The trade agreement between the EFTA countries (Switzerland, Norway, Iceland and Liechtenstein) and Indonesia came into force on Monday. Things were a bit shaky at times – it had to first survive a Swiss referendum over palm oil concerns – but the FTAs completion marks the first time a European country (or countries) has concluded a trade deal with Indonesia.
A Dereliction Of Duty
You can learn a lot about a country from what it tariffs, or not.
As discussed in MFNs past, the UK’s decision to tariff imported bioethanol was (apparently) driven by concerns about the resilience of its nuclear industry while its decision to limit the tariff-free import of long-grained milled rice, and pretty much nothing else, in its FTA with Australia (the Everything But Rice Agreement) revealed the outsized influence of my pretend nemesis, Big Rice.
So, that’s why I’ve become slightly fascinated by the unloved world of duty suspensions.
Duty suspensions (as the name suggests) are what happens when tariffs on certain goods are suspended for a temporary period of time. For an imported product to be granted a duty suspension, an importing company usually need to demonstrate that it
It will be used in a further production process in the UK as a component or input; and
The product cannot be readily substituted by an alternative sourced within the UK.
A country might also temporarily suspend duties on products in the event of an emergency. For example, the UK (and other countries) suspended a load of duties on COVID-19 critical goods – including PPE, hand sanitiser and … ambulances (!) – until the end of the year.
[Just an aside, my general view is that if the tariffs were found to be a problem during a pandemic we can probably conclude that we shouldn’t apply tariffs on these goods any of the time …]
And the requests are in – you can find them here [Excel file]. They include cigars, pretty much all the parts you need to make a bike, and incredibly strong rum.
And because everyone is talking about fish this week, I noticed these requests from the UK Seafood Industry Alliance [the fish processors] for tariff suspensions on a number of imported fish products:
(Some of these fish requests are, I think, building on existing suspensions and Autonomous Tariff Quotas transitioned from the EU … I started trying to work it all out and then remembered I really don’t care that much about fish.)
Other companies were then given until 24/09/2021 to lodge objections.
Anyhow, now we wait to see which suspensions are granted and which are not. And then, more interestingly, we can start to ask why they were granted, or why they were not.
With thanks to Twitter’s China-Trade-Watcher-In-Chief Henry Gao for flagging, it appears China, fresh on the heels of applying to join CPTPP, is also applying to join the DEPA negotiations.
DEPA is a digital trade agreement between Singapore, Chile and New Zealand and aims to include a load of advanced provisions on digital trade, data flows … y’know, cool stuff. (South Korea has also applied to join the negotiations, and yes I do think it’s weird the UK hasn’t yet, but there are apparently good reasons for this that I don’t fully understand).
But Wendy Cutler, the VP of the Asia Society and former US trade negotiator raises a good point (which also can be made in respect of China’s CPTPP accession):
I guess the answer is that China assumes its personal data protection law would be covered by the usual exceptions which allow, for example, the forced onshoring of data in the event it is necessary to achieve a legitimate public policy objective? (This is the same exception that means the UK feels to sign things saying it won’t restrict the cross-border flow of data despite retaining the EU’s GDPR).
Anyhow, yet another political headache for New Zealand’s Vangelis Vitalis.
Trade Remedies Update
As discussed previously, the UK’s fledgling Trade Remedies Authority has been causing a few headaches for the British government, largely for being too independent and not taking into account political considerations when making its recommendations (annoying the steel industry can lead to a political backlash, it turns out). I wrote:
So what next? Given the independent body was kneecapped on pretty much day one, there is now a question of the TRA’s legitimacy. If trade defence isn’t going to be a technocratic, arms-length, evidence-led process after all, why bother with the charade: bring the whole thing back inside of government, get it the hell out of Reading, and levy trade defence tariffs on the basis of what works politically at any given time.
Well that’s not what’s happened … yet. But the government is amending the existing legislation to give the Trade secretary a bigger say in the decision making process:
The measure will amend the existing trade remedies legislative regime to allow the Secretary of State for International Trade to “call in” transition reviews and reconsiderations of transition reviews conducted by the Trade Remedies Authority (TRA). After calling a particular case in, the Secretary of State will be responsible for determining the outcome of the review or reconsideration.
Walking a Fine Line
The revamped NAFTA (USMCA) between the US, Canada and Mexico includes a slightly mysterious provision that allows the US to pull out of the deal in the event either Canada or Mexico enter into a trade deal with a non-market economy [translation: China].
What with China now looking to join the CPTPP, which Canada and Mexico are members of, this could cause some problems. It appears to be of concern to China too. With thanks to Simon Lester at China Trade Monitor for spotting, China has raised the issue at the WTO’s Committee on Regional Trade Agreements, and the US gave a (slightly unsatisfactory) response. Read it here.
One For The Calendar
You might have seen that I am leaving CER to head up Flint Global’s trade work.1 If you were worried this would have an impact on this newsletter, fear not! Most Favoured Nation will be continuing as normal. And as ever, if you’re enjoying reading these, please do consider becoming a paid subscriber.
As ever, do let me know if you have any questions or comments.