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Hello from Brussels. China may have sparked a stock market rally today with news that it’s cutting tariffs on US imports as the coronavirus rages on, but here in Brussels trade has taken a bit of a back seat the last couple of days, with the EU’s fiscal rules for its member states the main attraction in town.
So in today’s main piece we’re looking ahead a bit at some really difficult decisions the EU has to make about trade deals and human rights. Tall Tales joins the general pile-on over the UK government’s claims about an Australian-style trade deal being the solution to Brexit, and examines just how feeble those agreements are in practice. Meanwhile, of course, the EU and Australia are negotiating an actual real trade deal, which the UK will probably at some point be scrambling to replicate. Our chart of the day looks at logistics company Flexport’s links to China trade.
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Brussels treads thin line with Cambodia
Time was when the function of trade deals was quite simple: they were supposed to liberalise or regulate trade. These days they are supposed to do all sorts: promote societal values abroad, execute foreign policy, save the planet. The simple stuff.
When other tools of international governance are rusting or broken, trade deals are often still intact. To adapt the familiar expression: if all you have is a nail, any hammer looks worth a try.
Getting bilateral trade deals past sceptical publics and hostile trade unions means that environmental and social standards have been given a bigger role, especially by the US and EU. There’s at least a logic to them when they’re directly connected to trade, such as upholding labour standards in exporting industries to prevent the famous race to the bottom. Using them to force wider change in human rights is both practically and morally tricky.
This is the situation the EU has got itself in. It’s agreeing a bilateral deal with Vietnam and inserting mechanisms to monitor that country’s progress on human rights and labour standards. This isn’t enough for Human Rights Watch and other campaign groups, including some from Vietnam, who want a higher bar for commitments. But it’s going to be sufficient to get the European Parliament on side.
We’ll see how that works out. They’ve been watching the US experience, where the labour unions have insisted on evermore complex means of monitoring labour standards in America’s bilateral deals, though not with conspicuous success so far.
But Brussels has set itself a far more soul-searching task in neighbouring Cambodia. It’s planning to withdraw trade preferences because of the government’s horrendous record on human rights and political freedom.
As a least-developed country (a UN definition covering the 49 poorest countries on earth), Cambodia is an automatic beneficiary of Everything But Arms, an EU 100 per cent duty-free preference programme. Now, the EU has preference schemes designed to promote human rights and environmental governance, such as GSP Plus, a variant on the standard Generalised System of Preferences for developing countries. Sri Lanka, for example, was removed from GSP Plus because of the government’s treatment of Tamils during and following the civil war, and later reinstated.
But EBA wasn’t intended to be heavily conditional and to draw a distinction between the deserving and undeserving poor. Withdrawing EBA preferences is an unusual move, reflecting what the EU says is an extreme situation. (It’s facing a similar position in Myanmar, thanks to the terrible abuses wrought on the Rohingya, and in Bangladesh.)
No one’s exactly enthusiastic about having to do this. Bernd Lange, the German social democrat who chairs the European Parliament’s international trade committee, says the EU has been pushed into this position by the Cambodian government’s total failure to engage with criticisms.
Sri Lanka was removed from GSP Plus because of the government’s treatment of Tamils during and following the civil war, and later reinstated © Lakruwan Wanniarachchi/AFP
Brussels now has a fiendishly delicate task technically, politically, and indeed morally. It has to decide precisely where to cut the zero-duty preferences. Cambodia’s export sector largely makes textiles and clothing, traditionally an early step on the east Asian climb out of poverty. Most of its workers are female. A wholesale removal of EBA preferences would be disastrous: the IMF reckons it would reduce GDP growth by 3 percentage points.
The EU is acutely aware of the sensitivities. Lange acknowledges Brussels is treading an agonisingly thin line. The EU action “should be hard [enough] so there is a pressure to economic operators to press the government” on human rights and political freedom, he said earlier this week. “But on the other side we should not be so hard that operators close their factories in Cambodia and switch production to Ethiopia.”
Certainly, Cambodia’s workers’ associations have pre-emptively blamed the government if the EU withdraws preferences. But it’s anyone’s guess whether this will have any effect. Government supporters are making defiant noises about declining to exchange the country’s independence for the EU’s trade preferences. And garment manufacturers are begging the EU not to take away market access.
Cambodia and Vietnam are going to be test cases for the use of preferences as a lever. If they don’t work, both sceptics of the whole concept and those who want conditionality to be much tougher are going to be emboldened. Trade deals look like handy tools to a casual observer, but they aren’t exactly precision-made for the purpose to which they are being put.
Charted waters
Shipping companies have been hit by the coronavirus disrupting supply chains — and San Francisco-based freight-forwarding company Flexport is particularly exposed to trade with China.
Tall Tales of Trade
A hungover wallaby is no less bogus an allusion than Boris Johnson’s trade deal claims © Paul Kolodziejski/Dreamstime
Boris Johnson’s claim that there is an EU-Australia trade agreement for the UK to copy has now been so thoroughly picked apart it now looks like a moulting swamp wallaby with a hangover, as they say in New South Wales. (They don’t actually say that in New South Wales — we just made it up — but it’s no more bogus an Australian allusion than Johnson’s.) There are a few minor deals between the two economies, but in reality the model is fairly obviously just a WTO-terms Brexit wearing a pair of Blundstone boots. (This is an authentic Australian reference.)
Anything left to diss? Well, let’s take a very quick look at one of those minor deals: the EU-Australia “mutual recognition agreement” active in certain sectors. Brexiters often make a big deal of these, perhaps hoping we’ll mistake them for automatic acceptance of the other’s regulations. In fact they’re just agreements to recognise each other’s testing centres, certificate and product markings. And if one side wants to cancel them, they can do so. There really is very little there.
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Read more - The US trade deficit fell in 2019 for the first time in six years with imports and exports both shrinking, as Donald Trump’s trade war with China raised costs and cut supply chains between the world’s largest economies.
Read more - What the UK’s financial centre, the City of London, needs from an EU trade deal is a combination of managed divergence and regulatory autonomy, writes the FT’s editorial board.
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Tokyo talk
The best trade stories from the Nikkei Asian Review
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