Hello from Brussels. Last week there was a “what happened next?” moment in a story we wrote about last year. We noted the long reach of a World Trade Organization ruling in constraining the takeover of an English football club, Newcastle United, by Saudi Arabia’s sovereign wealth fund. The problem was a WTO ruling won by Qatar against Saudi Arabia on intellectual property grounds because it blocked legitimate broadcasts from the Qatari TV channel beIN in the kingdom while allowing a pirated version. By breaking the law, this might have caused the Saudis to fail the Premier League’s Owners’ and Directors’ Test for football club ownership. In the event, while the WTO case technically remains open, Saudi Arabia has allowed beIN to broadcast.
Whatever guff the Premier League says about receiving assurances that the Saudi government won’t control the club, it was that settlement that opened the way for the takeover. So, at least Saudi Arabia’s adherence to WTO rules on IP is up to scratch. This leaves only the question of whether it’s OK to have a jewel of civic pride and emblem of national culture in effect owned by a dictatorship, which has beheaded people for sorcery, whose agents murdered and dismembered an inconvenient journalist and created a humanitarian disaster by bombing desperately poor countries into the ground, to which the answer is apparently yes.
Today’s main piece is on the deal on global minimum corporate taxes agreed at the OECD last week, its impact on trade disputes and the virtue of expedient fudge.
Charted waters looks at the state of global growth and the trade-related reasons for the latest slowdown.
Take the trade truce and run
So we have an agreement on corporate tax. More knowledgeable people than us reckon this is a bit of a fudge. Determined lobbying from Ireland ensured that the 15 per cent agreed minimum rate could not rise higher, and developing countries say they will still miss out on revenues. But, still, it’s good news for trade. For one, at the margin, as we argued before, it might have a medium-term collateral benefit in encouraging more efficient trade by removing distorting incentives for locating manufacturing in low-tax jurisdictions. A more immediate gain is defusing the row over digital services taxes (DSTs), which are now on hold for at least two years while the US administration tries to get the deal through the US Congress.
Avoiding a DST-based trade dispute is, let’s be clear, a Very Good Thing. The Trump administration’s sudden threat of Section 301 tariffs against the EU was a Bob Lighthizer special, blindsiding other US government departments. (Lighthizer, incidentally, continues to spout ripe nonsense about how great tariffs are even after his retirement as Trump’s USTR — hats off to him for real determination and stamina in the cause of persistently being wrong.)
The DST dispute also had the potential to escalate to something pretty nasty. It was largely in response to the Section 301 threat that the EU’s in-house legal-weaponry design studio came up with the idea of the “anti-coercion instrument”, which would allow Brussels to retaliate immediately against a trade restriction it considered an illegitimate attempt to infringe its policy sovereignty. Even if the tax deal itself isn’t all that, managing to keep a lid on another trade row definitely counts as a win.
We’ve had a few of these patching-up operations in recent years and we’ve probably got another one coming. The latest was this June when, during a visit to Brussels by President Joe Biden, his team suddenly proposed a surprise solution to the 17-year Airbus-Boeing subsidy dispute. The essence: let’s just assert everything has been resolved and agree to stop clobbering each other with WTO-authorised countermeasures. Recognising a higher cause than worrying about each other’s aircraft subsidies, namely worrying about China’s, the EU agreed. Does anyone think the EU will really get rid of launch aid for Airbus? No. But at least the Scotch whisky industry won’t be collateral damage from aircraft disputes any more, at least not for a while.
Going back a few years, an even more epic fudge was the 2018 deal the then European Commission president Jean-Claude Juncker sold to Donald Trump to forestall threatened US tariffs on European cars. Trump, apparently utterly bamboozled, agreed not to impose levies in return for meaningless promises from the EU to buy more US soyabeans and liquefied natural gas, together with the promise of a broader bilateral deal to cut industrial tariffs. Said deal, which would have violated the EU’s own policies and WTO rules had it ever happened, never actually did. Cynical on Juncker’s part, yes, but it worked.
There’s a similar exercise in what we might euphemistically call transatlantic pragmatism under way right now. Brussels and Washington are trying to fix the Trump-legacy Section 232 national security tariffs on steel and aluminium ahead of an early December deadline for the EU to double its retaliatory levies. Will the Section 232s just be lifted entirely as the EU wants? No. Will they remain in place unchanged? Most likely also no. There will be a fuzzy deal involving some kind of quota-ish arrangement with an indeterminate degree of formality, a bit of a monitoring system, a bit of this and a bit of that: hey, look over there! It will allow in a judicious amount of European exports to the US but nothing dramatic, steering a course between alienating US labour unions, inflaming European steelmakers and inviting WTO litigation from aggrieved third countries.
We at Trade Secrets have traditionally been all sniffily purist about deals like this and say things must be done comprehensively and by the book, adherence to the rule of law is tremendously important, intellectual coherence and multilateral principles are vital, that kind of thing. But quite often we think a day in which the world’s big trading powers aren’t actually shouting abuse at each other is a good day. Do the deal. Take the trade truce and run. It’s probably the best we’re going to get.
Charted waters
The global growth revival that’s occurred since the middle of 2020 has slowed, according to the Brookings-FT Tracking Index.
Reasons for the slowdown include supply shortages and weaknesses in the economies of the world’s biggest exporter, China, and importer, the US. Claire Jones
Trade links
The FT has a must-read interview with the Kremlin’s ambassador to the EU in which Vladimir Chizov has called on Europe to mend ties with Moscow in order to avoid future gas shortages.
Divisions over the fate of IMF head Kristalina Georgieva following accusations of bias towards China will dominate this week’s annual IMF-World Bank meetings.
The UK and EU are edging closer to a trade war as the UK continues to pretend not to understand a deal it signed and said was a great success. Interesting thread on the matter here, too.
Today’s edition of Europe Express has a section looking at the view from Brussels on resolving talks with the US on the aluminium and steel tariffs.
ESG is impacting importers in Vietnam. A lack of transparency threatens (Nikkei, $) to undermine the country’s rubber industry, experts and industry figures say, as global buyers increasingly demand stringent ethical and legal standards.
Meanwhile, the pandemic virtually halted Japan’s homebuilding industry and lumber imports, but the country last year used up (Nikkei, $) a 48-year high of domestic lumber to burn for energy.
Companies are preparing for “selective decoupling” from China, the FT’s Asia business editor writes.
The Economist’s latest special report ($) is on the new order for world trade. Alan Beattie, Francesca Regalado and Claire Jones
Source: Economy - ft.com
