Welcome to Trade Secrets. Today’s main piece is on the UK’s imminent-ish accession to the Asia-Pacific regional CPTPP deal (the Comprehensive and Progressive blah, you know the one), which has been a bit of a rough ride. But first, this week’s instalment of the transatlantic US electric vehicle tax credits saga, a drama with a classic three-act structure.
SET-UP: The Biden administration, which likes “friendshoring” and says Europe is a friend, wants allies’ EV manufacturers to get US tax credits when supplying minerals for car batteries.
CONFRONTATION: Congress says to be an ally you need a free trade agreement with the US: EU does not have one.
RESOLUTION: Washington and Brussels sign otherwise blank piece of paper with words “TRADE AGREEMENT” written on it. Sorted.
I exaggerate, but not beyond all recognition. As my DC colleague and Trade Secrets alumnus Aime Williams explains here, US and EU negotiators are writing an agreement on critical minerals, likely to be a loose statement of intent rather than anything binding. It will, however, be enough of a trade deal to unlock the EV credits while not being enough of a trade deal to have to go through Congress. Bit of a fiddle, but gets the job done. And maybe the agreement will develop some substance one day, hope springs eternal. Today’s Charted waters is on the power of global brands.
The North-Atlantic-Trans-Pacific Partnership
By multiple accounts, the UK’s application to join the 11-member CPTPP, a process that started in 2021 and is likely to reach broad agreement in the next week or two, has been a bit more bruising than London expected.
Except for more or less replicating the EU preferential trade agreements (PTAs) it inherited, CPTPP was only Britain’s third substantive deal since Brexit. The first two were with Australia and New Zealand, where the UK caved to demands to open up its beef market to get them signed quickly. The UK has developed a competent (and large) cadre of civil service trade negotiators, but ministers desperate for deals to put in the post-Brexit trophy cupboard puts them in a weak bargaining position.
Whatever the political impact, the UK’s long-run economic gains from joining CPTPP will be pitiful, just 0.08 per cent of gross domestic product. They’re still pretty inconsequential even if more countries in the region join (unless China gets in, but that really is a long game). Through replicating the EU PTAs, the UK already has preferential access to all the big CPTPP economies. To express economic growth in decibel form, the UK joining the deal in its current form is a cat sneezing three rooms away.
Given that market access to the UK isn’t worth much to them in turn, some of the CPTPP member countries felt free to be a bit of a pain, making Britain jump through bureaucratic hoops to make sure its laws fitted CPTPP rules. Its location thousands of kilometres away from existing members (a non-specific rather than a Trans-Pacific Partnership, you might say) and its history of being an imperial power in the region might have encouraged this attitude. If the UK felt any sense of entitlement at the beginning of the joining process, it certainly didn’t by the end.
One of the last outstanding issues got done last week, and seems to have involved a UK concession that might create some tricky conversations with British environmental campaigners. CPTPP member Malaysia is hopping mad about rich countries blocking its palm oil exports: the EU has a de facto ban on them and is creating new import restrictions on products linked to deforestation, a story for another newsletter. The UK, after its arguments about environmental protection were briskly rejected, apparently acceded to Malaysia’s demand it cut tariffs on palm oil to zero immediately on joining CPTPP. The UK’s anti-deforestation plans, which will appear in parallel to the final agreement, will also be less stringent than the EU’s. The UK chapter of the powerful global orangutan lobby, and I’m only half-joking describing it thus, is unlikely to be pleased.
The final jigsaw piece (see also Sam Lowe on this in his excellent Most-Favoured Nation newsletter) is Canada, which like Australia and New Zealand in their bilateral deals is holding out for more beef quotas. There’s not much historical or even geopolitical sentiment in trade. Canada might be the UK’s Anglospheric cousin and a military ally in Ukraine, but that doesn’t mean much when you’ve got Alberta cattle farmers on your back. There may be more headlines in the UK media about aggrieved British farmers when the details emerge.
So, a bit of a rough ride into the CPTPP for the UK and not many gains once it gets there. But is it still worth signing to try to keep the Global Britain brand alive, broaden its footprint in the world’s fastest-growing markets and so on? I’d say a pretty clear no, and that’s true for preferential deals more generally. Here’s why.
As noted above, the trade and GDP gains from CPTPP membership are minimal. By contrast, the costs of leaving the EU are credibly estimated at about 5.5 per cent of GDP. If signing CPTPP even remotely prejudices the UK’s probability of rejoining the EU in coming decades and repairing some of that damage, it isn’t worth doing.
Will signing the CPTPP delay the UK rejoining the EU? Of course it will, that’s one of its benefits as far as the government is concerned. UK trade minister Greg Hands said the quiet part out loud recently when he crowed that joining CPTPP would make it harder for a future Labour government to re-enter the EU customs union. It’s not an edifying statement.
So there it is. The UK’s negotiators have come a long way. But it’s been a rough ride, and right from the beginning the whole political drive for Britain joining was always more about spin and taking a poison pill against rejoining the EU than it was about substance.
As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.
Charted waters
Are there any winners from the global supply chain shortages, contributing to the double-digit food price inflation around the world? Yes. Discount retailers definitely. But also those producers with strong brand names, as the chart below shows.
My colleagues in the Lex team have written a useful explainer. Consumer goods companies had a remarkably strong 2022 despite the sharp rise in raw material costs and the cost of living squeeze, with companies such as L’Oréal, Unilever and Diageo securing high double-digit operating margins on their sales.
Maintaining brand loyalty like this costs money, but these times prove the value of such investment. There can, after all, only be one company offering the lowest price, but several businesses can secure their future by being seen as something of value to shoppers. (Jonathan Moules)
Trade links
Iana Dreyer at the news service Borderlex splendidly lets fly at the EU for obsessing far too much about Joe Biden’s green subsidies in general and its car industry in particular.
Japan has joined the makeshift substitute for the World Trade Organization’s Appellate Body, which a bunch of governments have put together while waiting for the US to unfreeze the real one.
The global food monitor from the Agricultural Market Information System says that good weather and good harvests have prevented the Ukraine war causing an international food crisis, but stocks remain tight and the risk remains high.
The Dutch government, announcing new restrictions on sending semiconductor manufacturing machinery to China, denied acting under undue pressure from the US and said export controls should be co-ordinated at an EU-wide level.
Trade Secrets is edited by Jonathan Moules
Source: Economy - ft.com
