Most Favoured Nation: Trigger Article 16

Gently.

Sep 02, 2022

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One day I will find myself not writing about the Northern Ireland Protocol. But today is not that day.

At the beginning of August (when lots of you were on holiday) I wrote about why the post-Russia-invasion-of-Ukraine change in EU steel tariff-rate quotas (TRQ) could see steel moving from Great Britain to Northern Ireland hit with a 25% tariff.

You should re-read the post for the gory detail, but anyway things have progressed … HMRC has released guidance saying that the new TRQ has hit capacity, therefore any further movements of Category 17 [“Angles, Shapes 17 and Sections of Iron or Non Alloy Steel” … apparently] steel into Northern Ireland this quarter will be subject to the 25% tariff.

Unideal.

But what to do about it? Because there is no way the UK is going to put up with steel moving within its territory being subject to tariffs. As I wrote before, in an ideal world where everyone is getting on this feels like the sort of thing that could be fairly easily resolved via discussion between the EU and UK and perhaps the creation of a Northern Ireland specific EU steel TRQ.

But as you may have heard, the EU and the UK are not getting on. Along with this steel TRQ issue, the UK is threatening to unilaterally tear up the Northern Ireland Protocol via the Northern Ireland Protocol Bill and impose its preferred solutions, and the EU has restarted (and opened new) infringement proceedings against the UK over existing non-compliance.

On all of these things the UK is in a bit of a bind. From a legal perspective, no-one other than the Attorney General thinks there is a legal justification for unilaterally rewriting the Protocol via the Northern Ireland Protocol Bill, and not even the Attorney General can find a legal justification for ignoring the steel TRQ problems, or even continuing the existing unilateral non-compliance (such as not applying full controls to food moving from GB to NI supermarkets), now that the EU has (re)started infringement proceedings.

And does anyone really want a trade war? Now? Given *waves at the world*.

Tricky.

If I were a new UK PM, who had promised the world to Brexit hardliners in the party over the course of their leadership campaign, this is what I would do:

Use the infamous Article 16 of the Protocol to provide a legal basis for not applying a tariff to steel and the continuation of the contested unilateral grace periods and light touch approach to goods entering Northern Ireland from Great Britain. This is arguably what Article 16 is actually for and would trigger a new round of discussions/can kicking. As well as providing some breathing space, it would also show the hardliners in the party that you are really tough and not scared of the EU and prepared to use Article 16 and … etc.
Kick the Northern Ireland Protocol Bill into the long grass. Seriously, no one needs that right now.

Chart of the week: Naughty Turkey.

Source: MFN calculations, relevant national statistics authorities

Reciprocity

At the end of August the EU’s new International Procurement Instrument came into force.

In brief, this instrument allows the EU to restrict access to its procurement market (either by penalties or exclusion) for companies originating in countries [see: China] that do not offer similar access to EU businesses.

The IPI only applies to contracts covered by the EU public procurement directive, are equal to or above EUR 15,000,000 net of VAT for works and concessions, and equal to or above EUR 5,000,000 net of VAT for goods and services, and are not covered by existing international commitments such as the WTO Government Procurement Agreement or a bilateral trade deal (UK firms, you can rest easy.).

In terms of coverage, the IPI is estimated to cover to about 17% of all procurement contracts in the EU, and around 70% by value.

This is one of those things that could, in practice, not amount to much more than a useful tool for threatening other countries. Or it could result in some serious beef.

On the serious beef side of things, one of the more interesting points I’ve heard made is about how the IPI could extend the scope of disputes to more complex products … therefore expanding the number of things you could have fights about.

Basically, anti-dumping-type disputes are largely confined to fairly simple products such as steel, wood, aluminium, tiles, fish … all the classics. At the more complex end you get bicycles. This is because trying to work out if more complicated goods have been dumped is really hard … particularly if you start trying to deal with branded goods.

Complex medical devices for example … don’t have many disputes over those.

But the IPI changes this. If a European MRI scanner company is struggling to bid for, for example, Chinese procurement contracts because they Chinese government is requiring them to hand over propriety information, or enter into a joint-venture, or something like that, as a condition, under the IPI the Commission could, potentially, place restrictions on Chinese firms bidding on similar contracts in the EU.

So what I’m saying is … we could have more trade disputes. Over even more things. Which would ultimately give me more to write about. Which is great news [for me].

Personal news

In my non-MFN capacity, I have a job and I have been promoted. If you feel like providing me with work to justify that promotion, please get in touch!