Hello from Brussels. Having been preoccupied with matters global and vaccine-related, we’re now catching up on local news, specifically the trade deal being negotiated between the UK and Australia. British journalists were heavily briefed last week that the UK was going to make a definite break with the EU stance on agriculture it inherited (despite our goading, we’re not claiming credit) and accede to Australian demands to reduce farm tariffs to zero, albeit over 15 years. Hold on, you say, the UK government promised its farmers that sensitive sectors would be protected. Well, those farmers can join the crowded “shouldn’t have trusted Boris Johnson” enclosure along with the British fishing industry, businesses in Northern Ireland, any company coping with technical barriers when exporting to the EU and a whole bunch of political and personal acquaintances. It’s not like they didn’t have literally decades of warning. Someone else was on about that yesterday apparently.
In the context of that UK-Australia deal, today’s main piece looks at the often-misunderstood issue of food and farming standards. Charted waters takes a fresh look at how the “phase one” deal between the US and China is performing now that there’s no pandemic-induced manufacturing slump to pin the blame on.
A playing field that’s hard for Britain to level
We do realise it’s a category mistake to analyse the UK’s view of the Australia bilateral deal as primarily an economic project rather than part of the stage set for the all-singing, all-dancing Global Britain free trade vaudeville spectacular. But studiously ignoring the entertainment and going in hard on the detail is our brand, so heads down and in we go.
Some Brexiters are now, hilariously, wondering what they’ve signed up to, complaining that the UK is about to sell out its farmers by allowing Australian farmers to undercut standards. It’s certainly true that Australian agriculture is allowed to use processes and techniques (live animal exports, herbicides such as paraquat) and to produce goods (our old pals chemical-washed chicken and hormone beef) that are banned or being phased out in the UK. Reportedly, the UK government is countering this by proposing that the zero-tariff regime would only be available to those products that meet British farming standards.
There’s some confusion here that needs sorting out. From a standards point of view, the Australia deal is less worrying than its critics seem to think. But then neither will the UK government’s apparent solution make much difference to those challenges it does pose.
First, chemical chicken and hormone beef are, if you’ll forgive the culinary mixed metaphor, a bit of a red herring. Food safety is part of the “sanitary and phytosanitary” (SPS) measures that World Trade Organization rules say any country can require for any produce sold in its market, as long as those standards are based on accepted science. That’s not a trivial condition: the US won a WTO case against the EU’s ban on hormone beef in 1997, after which Brussels had to buy off the US by opening a new import quota for non-hormone beef. But signing a trade deal with Australia would not automatically compel the UK to accept hormone beef or chemical-washed chicken. British SPS rules would continue to apply unless it chose to change them, as indeed would Australia’s own very strict SPS measures on products such as pig meat. Australia already has an established separate hormone-free beef sector which could take advantage of new market access to the UK.
A trickier issue is requiring foreign farm exporters to meet broader animal welfare or environmental standards, so-called “processes and production methods”. The criteria here are harder to justify under WTO rules as they are prone to protectionist abuse, but you can write them into a bilateral or regional trade deal and offer lower tariffs for higher-welfare or more sustainable produce. There’s some precedent here. Switzerland has a trade deal with Indonesia that gives preferential access to palm oil certified as sustainable: the EU’s draft deal with the South American Mercosur bloc does the same for eggs laid by Brazilian hens who enjoy European levels of welfare. Administratively, it’s a bit of a pain, because it requires exporters to separate different batches of the same product under a single tariff classification, but it’s not impossible.
So, make Australian exporters meet UK standards, level the playing field and all is well? Hmm. It’s not clear much levelling would be going on. Show British consumers photos of a vast Australian feedlot under the baking sun and it looks pretty grim compared with the pictures in children’s storybooks of jolly moo-cows chomping grass on a Cheshire farm. But try to write a deal that imposes higher standards on imports and it’s hard to see how it would make much difference.
UK and Australian officials both point out that Australian farming isn’t some lawless realm of wanton cruelty. The intergovernmental World Organisation for Animal Health, in its latest report on Australian agriculture, said that while animal welfare standards were poorly co-ordinated (they are set at state, not national, level), veterinary standards in general were high.
Most of its different standards wouldn’t make a difference to preferential trade with Britain. Australia generally has looser rules on live transport of animals, but then they wouldn’t be sending live animals all the way to the UK anyway. Most Australian states allow pig farmers to use “sow stalls”, which confine pregnant sows in small enclosures, but even at zero tariffs they probably aren’t going to be competitive enough to sell pork to Britain. Australia has a widely criticised practice called “mulesing” — cutting patches of skin off the backsides of sheep to prevent parasites — but it’s employed almost exclusively on merino sheep reared for wool, which already enters the UK at a zero tariff. Many Australian politicians may be contemptuous of the need to preserve forest cover and of climate science, but that’s not directly linked to particular exports.
The British farm lobby complains that such practices have helped Australian farming grow to its global competitive superpower status, even if they don’t specifically reduce costs for exports to Britain. But as Nick von Westenholz, director of trade and business strategy at the UK’s National Farmers Union, admitted: “Australian agriculture may be based on very different values to most British farms on issues like animal welfare and the environment, but it’s not straightforward to turn that into a specific set of standards that the UK can require in return for more market access.”
There’s a catch. As lots of people have pointed out, while Australia is a medium-size country on the other side of the world — their cows are not small, but they are far away — a deal could set important precedents. If the UK wants to go down the road of differential tariffs for higher-standards imports, it might end up in a whole series of difficult conversations about exactly what those standards mean. In particular, it opens up a whole new line of attack for the US farm lobby if and when a UK-US trade deal ever happens.
The UK might have found a way to sell the Australia deal to a sceptical public, if not Britain’s farmers. But there may well be harder conversations ahead. This is a show with more acts to come.
Charted waters
Chad Bown, of the Peterson Institute for International Economics, has done a great job of keeping track of whether the phase one deal that Trump-era Washington agreed with Beijing has lived up to expectations. The chief expectation being that China agreed to expand purchases of certain US goods and services by $200bn from their 2017 levels in the period between January 1 2020 and December 31 2021.
In 2020, the deal fell short, with US exports to China at only 58 per cent of where they ought to have been. There was, of course, the somewhat compelling excuse of a global pandemic that closed the world’s factories during the spring.
So how’s the deal faring this year now that exports are back on track? Not that well.
According to the chart, US exports to China covered by the deal are still only 60 per cent of what they ought to be. If they’re still falling short even when world trade is booming, then we’re very sceptical indeed that they’ll meet their target by the end of the year. Claire Jones
Trade links
Relations between Brussels and Bern are on the rocks. The EU has been trying to persuade Switzerland to sign up to an overarching framework to replace the patchwork of agreements that exist right now. But the talks have stalled. Europe Express explains why that is.
More on steel and aluminium tariffs, this time courtesy of the UK government, which is deciding whether to tweak (and maybe to reduce) the retaliatory tariffs against US products it inherited from the EU.
Tesla, stung by the semiconductor chip shortage, has said that it will not only pay for stock in advance but will buy its own foundry. Before the supply crunch, chips could be purchased last minute, in line with the just-in-time supply chain techniques common to the automobile sector.
Games console manufacturers are faring a little better, with Nikkei reporting Sony as saying ($, subscription required) it aims to produce at least 22.6m units of the PlayStation 5 next year so it can beat its 1998 record in console sales. Global demand for their machines has soared during lockdown.
Meanwhile, Russia is ramping up (Nikkei, $) exports of air defence systems to central Asian neighbours, as the US prepares to withdraw troops from Afghanistan.
Bloomberg is calling on ($) the US to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership to combat Beijing’s rising power in the region. We can see the argument, but (as we’ve written here) we don’t anticipate the US signing up to the CPTPP anytime soon. Alan Beattie and Claire Jones
