Most Favoured Nation: Who Runs the World [Trade Organization]? India.
MC12, the TRA, collabs and other stuff.
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I’ll level with you. I wasn’t at all optimistic that anything good would come out of last week’s WTO ministerial conference, MC12. In the previous edition of MFN I wrote:
… it’s hard to get excited about the WTO members failing to reach an agreement on fisheries subsidies, failing to reach an agreement on vaccine IP, failing to progress discussions on e-commerce, failing to move forward on agriculture negotiations, failing to agree a programme of substantive WTO reform, and if anything making things worse by quite possibly failing to extend the moratorium on applying tariffs to cross-border electronic transmissions.
But, thankfully, I was wrong.
After a hellish week of negotiating (more on that shortly), the WTO members did in fact manage to cobble together a deal on fishery subsidies, a Covid-19 vaccine waiver, and a temporary extension of the moratorium on applying tariffs to cross-border electronic transmission. They also committed to do some more work on WTO reform, and set themselves a deadline they will miss.
Of the different agreements, it is probably the extension of the e-transmission moratorium that practically matters most — in that without it you could see pretty much all American tech multinationals giving up on the WTO as a useful thing entirely – but the other two at least show that progress is possible … if you are willing to water everything down.
I asked trade hero Dmitry Grozoubinski (for this week only, MFN’s intrepid reporter on the ground at MC12), what he thought of it all. He said:
Opinions will be fiercely divided on whether the outcome delivered at MC12 was good, adequate or disappointing but no one can deny it did in fact deliver - surprising many who had all but written off the institution's negotiating function as hopelessly deadlocked between intractable competing interests and buffeted by economic and geopolitical crisis.
He adds,
The real test will be whether this marks a final hurrah for the organisation, harvesting all the fruit within reach and leading to a prolonged period of benign neglect by governments and stakeholders, or if by surprising critics the organisation has revitalised interest in its work and potential.
Now I think this is all correct. And I too am glad MC12 didn’t descend into a complete farce (although it did prevent me from being able to use my pre-prepared headline for this week’s newsletter, “Sh*tshow at the WTO”, which is a shame.)
But how did the deal(s) get done? Even mid last week, no one really expected anything to emerge from the chaos.
From talking to people involved in negotiations, it quickly becomes clear that the answer is: countries had to put up with a whole lot of nonsense from India.
For context, India always strongly pushes its own interests at these kind of trade negotiations. Which is its right. Painting itself as the voice of the developing world, India tends to to throw its weight around, holds negotiations hostage, give overlong speeches in plenary sessions, undermine the negotiation chairs, etc etc.
What is different about this time is that … none of the other big beasts really pushed back. When India asked for something, the US said nothing. When India stripped all of the substantive content out of the fisheries text, the EU grumbled but … ultimately did nothing.
But why?
Partly it was because the US didn’t really care about the content of the negotiations, and mainly just didn’t want to get the blame if everything fell apart. But it’s also because of **waves hands at everything else going on in the world**.
From a geo-strategic point of view, the US, EU and allies need India to be onside. Or to put it another way, the West can’t afford to open up another front with India, given its current problems with both China and Russia.
We’ve already seen this play out in the trade space over the past few months. Despite India’s reluctance to criticise or sanction Russia, it has been love-bombed from all angles. Australia signed a fairly one-sided FTA with India, the UK will do the same in the Autumn and the EU launched a Trade and Technology dialogue (and post-WTO, re-launched the EU-India FTA negotiations.)
And … this all makes sense. But it also gives India quite a lot of leverage. Leverage it isn’t afraid to use.
And in the end … even this was nearly not enough. As Dmitry points out, MC12 ended up being saved by an IT failure:
"India's position was always going to be pivotal to the outcome of these negotiations, and with their Trade Minister headed for the airport on Wednesday morning with Indian objections and concerns still very much in place, it seemed like all hope was lost. Fate, or as some joked a talented hacker in the Director-General's office intervened however, and an IT glitch in air-traffic control grounded all flights out of Switzerland trapping the Indian delegation in the asylum with the rest of the inmates - ultimately leading to the compromises and outcomes we see now. Is it possible therefore that the gods don't **entirely** hate the international trading system?"
Anyway, in the words of Beyonce, who now runs the World [Trade Organization]? India.
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Taking remedial action
On Thursday, I was happily going about my day, when a journalist friend messaged to tell me the Prime Minister’s ethics advisor, Lord Geidt, had resigned over something to do with the Trade Remedies Authority and tariffs and I might be one of the only people in Britain to know why.
And I told him “No, good sir, you are wrong! Long-term readers of MFN know all about the issues the UK has been having with the Trade Remedies Authority and therefore there are at least a couple of hundred people who vaguely know why!”
[I didn’t actually say this, but I like to think it is true.]
Anyway, for those of you who missed it, this is TL;DR:
Lord Geidt resigned, ostensibly over being asked to break international law re: something to do with trade tariffs. [He later put out a statement saying it wasn’t just because of this].
Last year, the Trade Remedies Authority, an independent body set up post-Brexit, reviewed a number of inherited EU safeguard measures (put in place in response to Trump’s trade war) to determine whether they could still be justified on a UK-only (rather than an EU-wide) basis.
Following its investigation, the TRA recommended that the UK extend steel safeguard measures on Chinese steel across 10 product categories for a further three years. For the other nine product categories the TRA recommended revoking the safeguards, either because there was no evidence of increased imports or damage to UK producers, or because the safeguard tariff was damaging the competitiveness of UK firms that use steel to make other things.
This led to bits of the UK steel industry kicking off. Unfortunately (for the UK government) the TRA had been set up in a way which limited the power of minsters to interfere: ministers could only accept or reject recommendations, not meddle with them.
But the government wanted to meddle with them. This led to it rushing through emergency legislation to give, then trade secretary, Liz Truss the power to tweak the TRA’s recommendation. [Note, it is not clear to me that Parliament was properly informed that the rushed statutory instrument was being deployed to allow the UK to breach its international legal obligations … but International law is apparently not a real thing now anyway so it’s probably fine.]
Instead of revoking the safeguard for nine product categories, the UK instead revoked the safeguard for four, but temporarily extended the safeguard protection for the other five.
In practice, this means that the UK has been applying [probably] illegal tariffs to Chinese steel for the last year or so. And the TRA has been conducting a further review, and it will publish its findings at the end June.
Presumably the government has already decided it will [illegally] extend the application some of these tariffs … and for some reason Lord Geidt was asked for his view and it was the final straw that broke the camel’s back and led to him resigning. Or something.
Anyway, politics has now moved on, but I for one will be interested to see
What the TRA’s report at the end of the month finds;
What the UK government does in response; and
Whether China brings a trade dispute against the UK
Also, if you would like to see a man fail to explain all of the above to Andrew Marr, please do watch this:
Advertising Break
I interrupt this broadcast to bring your attention to something relevant to my day job. As most of you probably know, MFN is not my main source of income [although you could shift the balance by become a paid subscriber …!]. As well as this newsletter, I lead the Trade and Market Access Advisory practice at Flint Global.
In exciting news, Flint has linked up with Sally Jones and [occasional MFN contributor] George Riddell of EY’s Trade Strategy team to offer a joint product for firms looking for advice on both how to structure themselves so as to best take advantage of new trade opportunities, and mitigate risks AND position themselves to shape the political, policy and regulatory environment they operate in.
Anyhow, if interested, you can find out more HERE.
Other stuff
MFN fan-favourite, Chad Bown, has a new paper out looking at the lessons to be learned from the US’s experience of using the Defense Production Act to build Covid-19 vaccine supply chains.
Trade expert Dr Mia Mikic produced this useful infographic, for those trying to get their head around all of the different trade Alliances currently taking place in Asia-Pacific:
Some of you might remember that during the pandemic, when medical supplies were hard to come by, the UK government introduced something called Project Defend. Project Defend was a concerted effort to diversify key supply chains out of China. Very exciting. Well, anyway, according to theMail on Sunday the UK is no longer bothering with that. As you were. (h/t Politico Morning Trade UK)
As ever, do let me know if you have any questions or comments.
Best,
Sam
Thanks for the useful summary. A slight nuance is important to build in to the account of the Fisheries Subsidies negotiations. It is true that India used its relative geopolitical weight to engage in brinkmanship, but this has to be seen in the context of the text that was on the table (W20).
India had long made clear that it needed to see more flexibility on SDT for subsidies where ovefishing or overcapacity is occuring, not least because of the millions of small scale fishers who punch well above their economic weight politically. Indeed, India stated this in no uncertain terms two weeks before MC12 in 'Fish Decision Week'.
This is why I was so suprised to see no concessions to India in the text presented to ministers for MC12. From this perspective, India's reaction was not an unreasonable one of holding the WTO to ransom but a rational response to the unwillingness of the developed countries to find a way to work with India's demands.