FT premium subscribers can click here to receive Trade Secrets by email
Hello from Brussels. The town’s in a sort of holding pattern where things could be worse, but they don’t show many signs of getting better. Some relief on Friday night when the US decided to tweak rather than radically escalate its tariffs on EU exports because of the Airbus-Boeing dispute. Meanwhile, Brexit has sparked some fighting talk from the French and British, but then name any substantial unbroken stretch of time in the past millennium when that hasn’t happened. We’ll see below how the EU is trying not to let itself be held to ransom by the member states’ parliaments when it negotiates the Brexit deal. Today’s Tit for Tat is with Joe Crowley, former New York congressman and co-chair of the Pass USMCA Coalition, while our chart of the day looks at how US states have fared on trade in the run-up to the presidential primary season.
Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to [email protected], or email me at [email protected].
The type of country you would associate with?
We’re counting down to late February when the EU adopts its negotiating position for the trade deal with the UK, with talks set to start the following week. Don’t expect a whole lot of constructive dialogue for a while after that, though, or at least nothing you’ll be able to hear over the performative rattling of sabres and resounding echoes of rebellious medieval heroism.
UK prime minister Boris Johnson’s government has been channelling Mel Gibson’s William Wallace to the effect that they can take our lives but they can never take our theoretical regulatory autonomy. Meanwhile, we’d all have been disappointed if France hadn’t once again looked out the old Jeanne d’Arc costume and played its centuries-old role as Britain’s bête noire. Paris has been trying to toughen up the “level playing field” conditions in the talks, designed to ensure the UK doesn’t sneakily start shelling out lots of the state aid it’s never shown much inclination to use.
In the meantime, the European Commission has also been planning for how the trade deal will fit into the wider relationship, and how that relationship will be anchored in treaty law. (EU officials love anchoring stuff in treaty law: it’s how they relax at weekends.)
In a standard trade deal, thanks to a helpful ruling by the European Court of Justice in 2017 about the EU’s bilateral agreement with Singapore, most elements can be passed centrally with a single collective vote of EU governments and then by the European Parliament. Only a couple of issues, including some types of investment deal, need to be ratified by each member state separately.
As far as the commission is concerned, the member-state route is to be avoided if possible. It gives malcontents and grandstanders the opportunity to be a pain. Everyone remembers the Walloon parliament holding up the EU-Canada bilateral deal after the Belgian national government in its infinite wisdom decided to consult the country’s regional authorities. Accordingly, deals are now structured whenever possible to allow for EU-only agreement.
The risks of giving each member state a spanner and a key to the works has become clear in recent weeks. The Dutch parliament — you read that right, the Dutch, quintessential northern free-traders, self-styled heirs to the British liberal tradition — has been threatening not to ratify the EU-Canada trade deal because of a bunch of concerns mainly about agricultural trade. Since Dutch farming is doing just fine and Canada hasn’t really been able to use the import quotas it’s been given, thanks to EU hygiene regulations it can’t meet, this just underlines the potential randomness that accompanies giving member states and their parliaments a say.
Dutch prime minister Mark Rutte, centre, in the country’s parliament in 2017. The body is threatening not to ratify the EU-Canada trade deal © Reuters
The commission’s plan is to anchor the UK trade deal in a wider association agreement (based on Article 217 of the Treaty on the Functioning of the European Union, if anyone’s taking notes). This is a kind of legal wrapper that could also contain agreements on security, transport and social security and what have you, added in future years if necessary. The cunning thing here is that in this case, an association agreement could be done by a single unanimous EU-only vote, possibly even for elements that would normally require country-by-country ratification.
It’s not clear the commission will get away with this degree of centralisation. Even if they individually have a veto over the collective vote, thanks to the need for unanimity, some of the EU states — and particularly their parliaments — might still feel they are being railroaded.
However (and here’s the even more cunning bit), that decision doesn’t have to be taken for the moment. As we understand it, the EU could decide to add elements to the association agreement in future in whatever way seems most prudent at the time, including requiring country-by-country ratification.
In other words, the EU is giving itself the potential but not the obligation to make centralised agreements with the UK. It’s leaving things flexible. No one wants a trade deal with Britain to end up stuck in a parliament in Wallonia, but no one wants a disenfranchised Assemblée Nationale to take to the streets of Paris either. It’s going to be a delicate political-bureaucratic-legal balancing act. We’ll wrap a wet towel round our heads and follow it as it goes along.
Charted waters
After reaching a limited truce deal in the long-running US trade conflict with China, and sealing congressional approval of a pact to revise Nafta with Canada and Mexico, Donald Trump has turned the focus of his aggressive trade policies increasingly towards Europe. How have US states been coping amid the president’s trade tussles?
Tit for tat
Joe Crowley, former New York congressman, is co-chair of the Pass USMCA Coalition and a senior policy adviser at lobbying firm Squire Patton Boggs
Following the success of bipartisan discussions over the US-Mexico-Canada deal, are you hopeful that there will be a more co-operative approach on trade going forward in the House?
I do believe that the passage of the USMCA was a positive breakthrough in trade agreements. It was able to garner support from much of the Democratic party base (including the AFL-CIO union federation). I am pleased to see that the agreement was ratified but I would caution against calling it a “template” for future negotiations with the UK or the EU without an agreement on IP protections, especially in the field of biologics.
What should the US look to get in a potential trade deal with India next month? And what would it be reasonable to offer India in return?
India is an important ally and will only grow in importance to the US and our western partners. There is also great opportunity for growth, in India, for US corporations. But there are hurdles that will have to be overcome on both sides. Data localisation and protection is an area of contention as is the need to continue lowering non-tariff barriers in India. Whatever the deal ends up including, I would expect the US to offer India back all or some of the GSP benefits it took away in 2019. I do believe that it is in the interest of the US to continue to build a durable and lasting relationship with India, and trade will play a major role in that.
What stand could the US take in the OECD negotiations over digital taxes that the EU has threatened to impose?
It is clear that the EU has recognised the competitive advantage that the US tech community has. It is one of only a few areas where we have a competitive advantage along with IP issues. We are comparable on issues of labour and environmental standards and may prove less contentious than TPP. But it will not be a slam dunk by any means and will take a considerable amount of time to see through.
Don’t miss
- This year, Asia’s gross domestic product will overtake the rest of the world combined in purchasing power parity terms. But to benefit from Asia’s growth, Britain must confront some make-or-break sticking points, writes Teresa Kok, Malaysia’s minister for primary industries.
Read more - Coronavirus is dividing the world into those who decry scaremongering about the epidemic’s impact and those who would rather be safe than sorry, writes Andrew Hill. Europe’s largest telecom conference — the Mobile World Congress scheduled to take place in Barcelona — has put itself firmly in the second group.
Read more - Without practical agreements with the EU in Britain’s new relationship with the bloc, companies could be required to produce a mountain of paperwork at border crossings, according to the British Retail Consortium, reports Reuters — harming consumers, retailers and the UK economy.
Read more
Tokyo talk
The best trade stories from the Nikkei Asian Review
- Coronavirus may become a turning point for Asia’s manufacturing landscape, giving multinationals already facing pressure from the US another reason to diversify away from China.
Read more - Silicon Valley venture capitalists are not taking any chances with the coronavirus outbreak, declining to invest in Chinese start-ups despite it being a good time to buy low.
Read more
