UK/US trade talks face chemical chicken conundrum

Hello from Brussels. First of all a quick update on the World Trade Organization director-general (DG) selection. On Friday Nigeria’s former finance minister Ngozi Okonjo-Iweala declared her candidacy. On top of Kenya’s Amina Mohamed, who has yet to get the formal nomination from her president (amid some rumours she might otherwise be interested in heading up the Commonwealth Secretariat) that makes two super-impressive female African candidates in the running. Today Mexico nominated its own highly qualified candidate, the economist Jesús Seade Kuri, who just renegotiated Nafta with the US and is a former WTO deputy DG. The EU’s trade ministers, having been left a bit flat-footed, are talking tomorrow to decide what they will come up with.

Also tomorrow the WTO will issue an appeal ruling (that got in under the wire before the appellate body went into the deep freeze) in a case on whether Australia’s plain packaging rules for cigarettes are a violation of intellectual property rights. Australia won the first stage: it would be surprising if it lost at this point. If so, it will be (hopefully) the end of an epic multi-jurisdictional litigation battle. The tobacco company Philip Morris took a case to Australia’s national courts over plain packaging, and lost. It then took an investor-state dispute settlement (ISDS) case on the same issue, and also lost. At its and other tobacco companies’ urging, a bunch of countries — Honduras, Indonesia, the Dominican Republic — also went after Australia at the WTO. They’re probably going to lose there as well. Australia’s famously skilled trade officials might have earned themselves a glass or two of Hunter Valley shiraz and maybe even an ironic cigar when the ruling comes out.

Today’s main piece is about the UK contorting itself to try to reconcile irreconcilable differences in the bilateral US talks. Our Charted Waters looks at traffic between the two trading ports of Dover and Calais, while our Tit for Tat guest is Anabel González, former minister of trade of Costa Rica and now non-resident senior fellow at the Peterson Institute.

A dog’s breakfast of chlorine-washed chicken

Do pets eat chlorine-washed chicken, we wonder? Perhaps so, since the convoluted food regulation the UK seems to be proposing in its US bilateral talks is shaping up to be a bit of a dog’s breakfast.

Chemical-washed chicken (yes, we hear you, US Department of Agriculture, it’s not usually chlorine these days, thanks for that) was always going to be a big issue in a UK-US deal. This particular Trade Secrets author wrote his first story on transatlantic chlorine chicken wars in 2007, when one George W Bush was in the White House and some bloke called Tony Blair had just left Downing Street.

The plan the UK seems to be preparing is designed to reconcile three incompatible desires. One, a lot of British consumers won’t like the idea of chemical chicken. Two, UK farmers, currently protected by the high tariff the UK is inheriting from the EU, don’t want cheap import competition. Three, the US wants to sell chicken to Europe, and it wants its risk-based approach to regulation that allows chemical-washed chicken to prevail over the EU precautionary principle.

It is not clear that it will be worth it for US chicken producers to set up a separate non-chemical chicken supply chain just for the UK © AFP via Getty Images

It’s still not absolutely clear what the UK is proposing, but in any case let’s look at the possible variations and issues arising. In one version, the UK drops the ban on chemical-washed chicken for all trading partners. It then gives the US enough of a preferential deal for non-chemical chicken in the bilateral deal that American exporters only sell the non-chemical stuff.

There are a few problems with this. First, chicken is a high-volume, low-margin business. It’s not clear that it will be worth it for US chicken producers to set up a separate non-chemical chicken supply chain just for the UK. The US has a niche hormone-free beef industry that sells into the EU to cope with European restrictions, but that’s a much higher value-added product for a much bigger market.

Why would the US sign up to a deal where it changes a rule but doesn’t make use of it? Sure, it would win a symbolic regulatory victory by getting a theoretical foothold for chemical-washed chicken in Europe. But the National Chicken Council and its friends on Capitol Hill don’t want purely symbolic victories: they want the cheapest possible American chicken on the shelves at Tesco.

The other problem is that if the ban on chemical chicken is dropped for all trading partners, there is nothing to stop low-cost chicken producers (say, Brazil or Thailand), which already manage to sell a lot of poultry in the UK despite the high tariff, switching to cheaper chemical-washed chicken to increase sales. In that case, chemical chicken will enter the UK, and consumers and farmers will be annoyed.

OK, you say. So instead, drop the chemical chicken ban just for US imports, and then make sure you give them a big enough preferential deal that they still sell you non-chemical. The problem there is that you can’t reasonably weaken a food standards rule for one trading partner and not another: it’s an obvious case of discrimination.

Such rules — either for health reasons or for animal welfare reasons — are supposed to be based on objective criteria. It would be bizarre to argue that there’s something uniquely great about American chemicals that produce safer meat than a chemical wash anywhere else. It makes equally little sense to say that you care about the welfare of all chickens everywhere in the world except American chickens, who are apparently little jerks who have it coming to them. An unpleasant time in front of a WTO dispute settlement panel would probably loom if Britain tried it.

It’s all a bit of a mess. So, how did we end up here? Well, Trade Secrets may once or twice have made the point that the UK’s embarked on a bunch of trade negotiations without knowing what the public wants and producer interests in the UK will bear. Without that, it’s unable to prepare expectations among trade partners for what they are likely to get in a deal.

That’s exactly where we are now with the US. The government is attempting to half-renege on incompatible promises to squeamish UK consumers, anxious British farmers and aggressive American poultry companies by creating theoretical market access but trying to make sure it doesn’t get used. Something tells us that’s not a position it can hold for very long.

Charted Waters

Post-Brexit trade between the ports of Dover and Calais is still plagued by uncertainty, with six months to go before new rules begin and still no clarity on the government’s plans to manage significant cargo traffic, writes Peter Foster, who travelled to Dover to check the situation out. Even during the Covid-19 crisis Dover has handled 7,000 trucks a day, but that can reach 10,000 in peak periods. How the government plans to manage the new UK customs border remains unclear because, with under six months remaining until the new regime comes into force, it has still not published its Border Operating Model.

Tit for Tat

Anabel González believes the first priority for the WTO’s new director-general should be to restore a minimum of trust in global trade co-operation

Anabel González, non-resident senior fellow at the Peterson Institute, joins us to answer three blunt questions.

How should the WTO be reformed to best function in a post-pandemic world?

The WTO needs to deliver to remain relevant. On the rule-making front, the answer lies in the negotiation of plurilateral agreements by interested countries, open to all. This is already happening in ecommerce, investment facilitation and other areas. A deal on trade in medical supplies could be added to the list. On dispute settlement, while a more permanent solution is found to the appellate body paralysis, more countries could join the temporary appeal arbitration arrangement recently put in place by some 20 trading partners, including the EU, China and Brazil. And finally, improved monitoring could happen with an enhanced role for the WTO secretariat, the use of technology and maybe some nudging from external sources.

Is it politically realistic at this time to call for all nations to remove tariffs on medical equipment? Is there a possible compromise solution given that certain countries are less open to this than others?

There is no single country that can produce efficiently all medical goods that are needed to fight this or other pandemics; most rely on trade to support health and lives, certainly in much of the developing world. A large number of countries have already reduced tariffs on medical gear, albeit some temporarily, which provides a good starting point. New Zealand and Singapore have put out a plurilateral initiative to remove tariffs, not to impose export restrictions and to remove non-tariff barriers on critical medical (and food) products. Other like-minded countries could join or build on this initiative. Also, 34 countries are part of the WTO Pharma-Agreement, which eliminates tariffs on 7000 pharmaceutical and chemical products. Another option is to update this agreement and expand the scope and number of participants.

What should the new director-general of the WTO, whoever that person is, make their first priority?

The new DG will find a full plate when stepping into office. The WTO is facing multiple Covid-19 and non-Covid-19-related challenges. First, what is to be done to help fight coronavirus, support the recovery of the global economy and reform for the future? Second, how can it revitalise and become more effective in its negotiating, dispute settlement and monitoring functions? And third, can it deliver on three complex concerns underlying tensions in the system: market-distorting state intervention in the economy, governance of digital trade, and role of the larger emerging economies? All this, ideally, while helping to make trade more sustainable and inclusive.

Amid this complex and politically charged agenda, the first order of priority should be to restore a minimum of trust in global trade co-operation. The DG will need to get WTO members, particularly the largest among them, to engage and work together — even if hesitantly. The most pressing area is to tackle detrimental trade measures put in place to address Covid-19 and negotiate a deal to liberalise trade in medical products. Delivering a quick breakthrough on urgent matters would help restore confidence in the WTO’s relevance and pave the way for greater collaboration, one step at a time. It will be messy and hard, but that comes with the job description.

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