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Hello and welcome to another week of wondering when the whole trade story might suddenly be dominated by a geopolitical rupture and energy shock emanating from eastern Europe rather than the slow and technocratic processes of, for example, the EU taking China to the World Trade Organization over what it calls a power grab to set smartphone technology licensing rates, the UK reaching the next stage of its application to join the Asia-Pacific CPTPP pact, or ministers wanting the WTO to hold its postponed ministerial by the end of June. Apparently, the question of a Ukraine invasion all comes down to a few old men in Moscow who aren’t really that bothered about what happens to the Russian economy and might even personally benefit from sanctions, which is not the most comforting thought.
Speaking of which, in future Trade Secrets we’ll take a look at financial and trade sanctions in the Russia context and whether co-ordination between the two big participants (the US and Europe) can be made effective. In the rest of today’s newsletter we’ll look at two issues: first, the broader subject of transatlantic co-operation on strategic trade policy; second, the EU-Africa Union summit at the end of last week and what it tells us about trade and development.
Charted waters this week looks at how the price of a British pint is being hit by the rising cost of raw ingredients.
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The fond hopes of co-ordinated unilateralism
The EU is tooling up to be more strategically assertive on trade, the US wants the EU as a geopolitical ally against China and (of course) Russia, ergo the US should be super-keen on the EU’s new get-tough direction. Right? Right?
Well, hmm. Depends how they get used and against whom. This came to mind because I heard an interesting nugget recently. The EU anti-coercion instrument (ACI) has built up a lot of momentum, including with some central and eastern European countries that aren’t always on board with tools that might be used for protectionist ends. Why? Partly, because said countries instinctively look to the Atlanticist alliance. And what with the Russia-Ukraine (and the China-Lithuania) situation, there’s a perception there that the US is looking quite kindly on the ACI as evidence that the EU is getting serious about an assertive strategic trade policy.
If the US ends up a fan of the ACI (it will no doubt depend on exactly what the instrument eventually looks like), it will be quite the turnround. The ACI started life as a weapon created with the US as a target. It was a response to former President Donald Trump’s threats to impose tariffs on French handbags and other strategically vital goods in retaliation for EU countries imposing digital services taxes. (To be more precise, the ACI was the European Commission’s attempt to head off plans in the European Parliament to create an even more radical unilateral tool that looked a lot like the US Section 301.) With the digital services tax issue defused and Joe Biden replacing Trump, the likely target shifted to China and Russia.
It’s not the only time recently a US policy has inspired an EU counterpart. There’s a lot of America-envy going on in certain quarters of Brussels at the moment. The European Chips Act was designed to generate a headline figure somewhere near the $ 52bn the US Congress was planning to dump on America’s semiconductor industry, and the export restrictions in European policy mimic the use of the US Defense Production Act in requiring state-subsidized companies to prioritize the domestic market when required.
But creating similar kinds of tools does not mean transatlantic coherence and co-ordination. Although there are some vague references to co-operation on semiconductors, for example, it’s pretty clear that each economy is going its own way on boosting production. As for the anti-coercion instrument, it would be unwise to assume it could never be turned on in the US, especially if there’s a change of administration back to Trump or someone like him. There is an awful lot of unilateralism going around with a hope rather than a clear plan that it will be co-ordinated.
Africa and Europe have a less than cordial chat
The leaders of the European and African unions had a summit at the end of last week. It was not exactly all rainbows and kittens. Predictably, despite the European Commission’s attempts to change the conversation by talking about mobile vaccine factories and technology transfer, the African Union leaders brought up the intellectual property waiver they are seeking in the WTO “Trips” agreement about which I was skeptical last week. However far the issue remains from resolution, it still isn’t going away, and the EU had to promise the AU another meeting in the spring with no doubt a great deal of painful communique-drafting to come.
With regard to actual economic relations between the two continents (please skip lightly over my crude generalizing here), it’s remarkable how the debate has shifted from endless talks of the geometry of preferential trading arrangements. Time was when the discussions were all about Economic Partnership Agreements (Epas) and Everything But Arms and tariffs and rules of origin and so on. Then it turned out that straight-up market access was not really the problem with African economies selling into the EU so much as delivering the investment and growth that meant they would have something to sell. And there China often looks like a much better partner than Europe.
Trade between the EU and Africa has stagnated for a decade despite highly preferential treatment for most of Africa’s exports. Meanwhile, internal rivalries undermined attempts to create blocs with critical mass. The EU agreed last year to implement bilaterally with Kenya a deal originally intended to encompass five countries in the East African Community, something of an admission of defeat. The EU problem now is that the trade-related areas African governments want to discuss, such as European investment in infrastructure to rival China, are issues where the EU has only weak collective ability to act. Trade policy is not mainly about trade deals any more, and this is a clear example of why.
Now could be a good time to forswear the demon drink. British pub groups have warned of a looming escalation in beer prices owing to the increase in the cost of the raw ingredients – the price of malting barley, the most important element of lager, have more than doubled in the past year.
It is an international problem, compounded by snarl-ups in global supply chains. The problem for retailers – including pub landlords – is how much of the extra cost to pass on to their customers. They may of course welcome a stiff drink – whatever the price – to alleviate the misery of escalating inflation more generally.
China’s shoppers are switching to local brands, a trend with big implications for global supply chains.
The transport company Flexport’s regular indicator of timeliness in delivering shipping containers shows no sign of improvement, indicating that the supply chain crunch continues.
Exports of Mexican avocados to the US will resume after threats to an American inspector temporarily halted sales.
Australia is expecting a surge of tourists as it admits double-vaccinated travelers for the first time in two years.
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