The Russian corporate divestment that never happened

Hello from Trade Secrets. I have no opinion on Leopard tanks or their deployment, so if you’re looking for a reprieve from that particular debate, sit down. In other transatlantic tension news, a lot of chatter at Davos last week over – what else? — the tax credits for electric vehicles in Joe Biden’s Inflation Reduction Act. First, Senator Joe Manchin of West Virginia said that he did not know that the EU did not have a trade agreement with the US and therefore was not eligible for some of the credits. Experts were divided on whether Manchin was saying this for effect or really didn’t know. Second, the EU side sounded more lenient than before, at least privately, perhaps finally giving up on opening the door to the tax credit and instead concentrating on sneaking through the window. Third, businesses seemed very keen on the IRA, no doubt in some cases as the potential recipients of scope.

In today’s chapters, I look at how the World Trade Organization excludes itself as a forum to address said subsidiarity, but first I will address the weakness of corporate morality regarding withdrawal from Russia. Today’s Charted waters see how these disrupted times failed to suppress international trade.

Nobody is Russian for the exits

A thought provoking and disturbing paper has emerged from the formidable duo of Simon Evenett and Niccolò Pisani, respectively from the University of St Gallen and the IMD Business School in Switzerland. You may recall a flurry of activity (or at least of announcement) in the weeks following the invasion of Ukraine last year that image-conscious rich-world multinationals exited Russia in a May Day parade-style display of moral justice.

Even though I was just observing their willingness to continue trading in other countries with unpleasant regimes, I was skeptical at the time that it was actually being done on principle. Volkswagen and McDonald’s, the latter of particular significance given its symbolic opening in Moscow after the fall of communism, have both announced they are pulling out of Russia. But both still work in Xinjiang, the province where China holds more than a million Uyghurs in camps. Withdrawal would happen when forced by sanctions, I thought, not by corporate ethics or consumer pressure. Since then, of course, we’ve had the Qatar World Cup: much talked about brand reputation at risk, but still a commercial success.

That skepticism seems to have been justified. Evenett and Pisani found that less than 9 percent of EU and G7 companies withdrew from Russia, above the average of all countries (4.8 percent), but still not exactly a stormy exodus. Among rich nations, U.S. companies were more likely to leave than others, though still below 18 percent.

What do we conclude from this? Arguably, we should rely on determined governments rather than corporate voluntarism to isolate repulsive regimes. It can be done. Western Europe and especially Germany’s sharp reduction in use of Russian gas, for example, is a truly impressive feat, Leopards or no Leopards. It is also worth about 100,000 pious business managers’ statements about social responsibility.

WTO to litigants: go away

Quite the admission of Ngozi Okonjo-Iweala last week about the IRA row. The WTO Director-General had a message that would have been unusual in earlier years, at least since the WTO’s binding dispute settlement scheme was created in 1995. Sort it out on your own: don’t bring it to a WTO dispute panel.

The sad thing is that it was probably a shrewd intervention. (If you find yourself questioning Okonjo-Iweala’s political instincts, you better double and triple check you didn’t miss anything.) The US has already stripped the WTO appeals body of judges and flatly said it won’t comply . with the ruling on steel tariffs that questioned America’s right to create its own national security loopholes in trade law. It is good not to poke the bear too hard by also questioning its green investment plans.

As it happens, the only obviously WTO-incompatible parts of the IRA are the local content requirements for electric vehicles. The rest of the subsidies are potentially vulnerable to counter-subsidy duties, but this depends on complaining countries showing a negative impact on their industries.

Keeping the IRA away from the WTO leaves the organization’s dispute settlement system fumbling with issues such as anti-dumping duties on frozen fries worth about €20 million, the first case to come to the settlement appeals system created by the EU and others. Europe insisting that everyone eat Belgian frites (frankly, the best in the world – apologies to any French people reading) is nicely symbolic, but not exactly the subject that will define the next century of globalization.

To be precise, this is not the first time a WTO DG has warned that dispute settlement is not the best forum to resolve a problem. Okonjo-Iweala’s predecessor Roberto Azevêdo said the same about those cases against the US using the national security loophole. The right thing to say on both occasions? Probably. But depressing nonetheless.

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 also see all my columns and previous newsletters.

Charted waters

The Financial Times created the Disrupted Times newsletter because we are living in what feels like a tumultuous moment in history. The global financial crisis, Covid-19, resurgent nationalism, war in Ukraine and the deteriorating relationship between the US and China have challenged the idea that globalization is an unstoppable force. But capitalism and international trade are resilient animals.

You see a snapshot of an interactive graphic. This is most likely due to the fact that you are offline or JavaScript is disabled in your browser.

There has been a shift in perception from “dog trusts dog” to “dog eat dog”, but in practice it has not been such a big shift, according to Martin Wolf, chief economic commentator of the FT. The chart above uses data from a report published in November by the McKinsey Global Institute.

McKinsey found that global flows are now led by intangible goods, services and human skills and most of these flows have proven strong during the recent disruptions. (Jonathan Moules)

Trading links

Trade ministers have launched a climate coalition to try to tackle green issues by addressing them in multilateral trade policy, among other things. The US is a member, which makes you wonder how far it will go. See above.

The Netherlands, home to world-class semiconductor machine company ASML, says it will not automatically accept US export controls it blames for unfairly affecting its sales to China, but some sort of compromise nevertheless seems likely.

Brazil and Argentina have said they are looking at setting up a common currency: I’m confident I’ll be retired if it’s not dead by the time it actually happens.

My FT colleague Peter Foster in the excellent Britain after Brexit newsletter looks at the difficulty of micromanaging immigration after the end of free movement of labor from the EU.

Nicolas Lamp at Queen’s University in Canada, building on his work with Anthea Roberts of the Australian National University on competing narratives of globalization, looks at what this means for international trade cooperation.

Trade secrets are edited by Jonathan Moulds