Articles by Daniel Capparelli on the GC Blog and GC analysis
Viewed from Brussels, April 2019 marks an inflection point in the EU’s strategic approach to China. By all accounts, EU institutions and member states managed to display unprecedented unity in protracted and difficult negotiations with Beijing ahead of the EU-China summit, confounding expectations to secure a set of important Chinese commitments towards a more reciprocal and balanced bilateral trade and investment relationship.
China’s “two sessions” were revealing about the tensions between the leadership’s internal and external policy objectives. The authorities are attempting to strike a balance between controlling slower growth and increasing urban employment, while reducing rural poverty, combatting pollution and reducing financial risk. The most important development was the passing of a new foreign investment law which seeks to address long-standing complaints of foreign businesses. But in this and other areas that matter for China’s external relationships, there are questions about implementation and enforcement. China’s apparent embrace of the concept of “competitive neutrality”, both domestically and in foreign markets, is also potentially significant. But that depends on how it is deployed in practice. Further steps to increase trust and transparency are needed if western countries are to become more receptive to Chinese acquisitions and more are to embrace the Belt and Road Initiative.
A distinctive feature of President Juncker’s “political” European Commission was a single set of collective top-down priorities, rather than a stitching together of the agendas of individual commissioners. In 2014, this meant a focus on economic reforms to restore growth lost during the 2008 financial crisis: a digital single market, a capital markets union and an investment plan for Europe. Events inevitably challenged this strategy — an unprecedented refugee crisis, Brexit, the emergence of new security threats — but it proved more resilient than many expected at the outset of the “last chance” Commission.
The imposition of rules of origin on trade between the EU and the UK is often poorly understood as an important factor in managing the impact of a UK exit from the EU. While it is generally expected that the UK and the EU will ultimately trade with each other on a largely or completely tariff-free basis via a preferential trade agreement, accessing the preferential terms of such an agreement will require that exporters in both directions comply with origin rules. These are the detailed local content requirements that goods must meet to benefit from a preferential trading framework.
Yesterday, the European Council’s Trade Policy Committee gathered for an informal meeting in Tallinn to discuss how to approach the European Commission’s new trade package. The package essentially fleshed out some of the policy details of Commission President Jean Claude Junker’s vision for a more balanced and progressive EU trade policy, set out in his ‘state of the union’ address. In practice, the new policy package also outlined what will be the EU priorities in future FTA negotiations, and can be read as an attempt by the Commission to get its house in order ahead of politically contentious negotiations on a future trading relationship with the UK.
The question of UK membership of NAFTA seems to be doing the rounds again. This is not entirely surprising. Both Australian and Canadian trade officials – including Ottawa’s former chief NAFTA negotiator - have recently called for the UK to join existing trading blocks, such as NAFTA, as an easy fix to potential Brexit-related disruptions to UK trade and production. The idea in itself is not new – back in the early 1990s, some members of Congress in the US hoped to convince London to swap the EU for NAFTA. But, with Article 50 negotiations now under way, there are some in London and Washington who would like to see it seriously considered.
This has been a tricky week for EU trade policy. Up until last Friday, EU governments were largely expected to unanimously give their final greenlight in this week’s Council meeting for the signing and provisional implementation of CETA. However, this week the minister president of Belgium’s Wallonia Region Paul Magnette de facto ordered the Belgian federal government to vote against the deal. The Canadians have just walked out of attempts to patch up an agreement in time for the 28th October formal signing at the EU-Canada summit. Clearly the ability of little Wallonia to halt the ratification of the EU’s flagship FTA in 2016 is an issue. The question will be how to resolve it.
It is widely accepted that services, and financial services in particular, are a key comparative advantage of the UK. A full quarter of UK services exports are financial or insurance services. This is an asset and a liability. Much of this financial services trade is potentially exposed to the impacts of Brexit, where the loss or roll-back of the EU passporting regime for the UK would impact materially. Outside of the EU, these are the sectors for which market access is often patchy or constrained and where conditions of local regulation are often key to UK firm performance. These factors make a trade policy customised to opening up and deepening export markets for UK services a priority for the UK. So what might that mean in practice?
Among the many implications of a UK exit from the EU is a fundamental change to the way that the UK makes and implements trade policy. As part of the EU, the UK’s trade policy is effectively set by the EU’s common commercial policy. The UK shares a single external tariff regime with the EU – a corollary of the single market – and many of the key elements of its wider trade policy position (farm subsidies, investment and intellectual property rules) are defined in Brussels. Much of this is now set to change. For supporters of exit, this is indeed one of the potential attractions of greater UK autonomy. What policy choices need to underpin an independent UK trade policy? How quickly can the UK expect to be able to start signing deals – and who with? And what leverage will the UK bring to the table to attract a new level of ambition from others?
Former UK Europe minister, David Davis was the latest UK politician to set out in print yesterday a post-Brexit manifesto for UK trade policy. In both substance and form, his vision is a synthesis of a range of proposals raised by the leave camp during the referendum campaign. It is hard to fault Davis for ambition. For any business with an interest in UK trade policy it is worth a good look, not least because there are some important holes in his assumptions about what happens next for UK trade policy.
Mexican trade negotiators are in Brussels today for the first round of negotiations to upgrade the fifteen-year-old EU-Mexico FTA. The 2000 EU-Mexico agreement was one of the first ‘modern’ (translation: “we agreed to talk about services and investment”) FTAs the EU ever signed, and one of the very few FTAs it has ever managed to sign with one of the larger emerging economies (the other is the EU-South Korea FTA).
So Dilma Rousseff is gone, at least for now. Over the next 180 days, Vice President Michel Temer will set out an economic agenda focused on the consolidation of public accounts and on business-friendly market reforms, while Dilma’s impeachment trial continues. This begs the question of how much Temer can realistically hope to achieve in the 180 days he has in power. The answer depends on what he and his allies see as being really at stake.
TDI redux. The EU’s trade defence instruments (TDI) reform package was officially put back on the agenda by the Dutch EU presidency today after having been shelved in 2014. However, this apparent new impetus behind TDI reform is not the result of a sudden new consensus on merits of the Commission’s 2013 proposal in itself – which died a slow and mangled death in Trialogue between the Council and the European Parliament - but of another problem that needs a solution. That problem is the question of how or when or if the EU awards China ‘Market Economy Status’ (MES) in 2016. Our analysis of this problem is here.
On 24 July, the WTO announced the conclusion of negotiations to update and expand the product coverage of the 1997 Information Technology Agreement (ITA). ITA II will eliminate tariffs for over 200 high-tech products – including new generation semiconductors, videogame consoles and global positioning system devices – traded between the 80 signatories of the original agreement. The final approval of ITA II at the WTO Ministerial Conference on 15 December in Nairobi will make it the first WTO tariff-cutting agreement in almost two decades. Beyond its obvious direct impact on global ICT trade, ITA II is interesting for what it might suggest about the future of WTO-led trade liberalisation initiatives and the balance that it is possible to find between a world of bilateral FTAs and the apparent impossibility of striking a world trade deal of the kind that has not been seen since 1994.
The European Commission last week published its new trade policy strategy, the most comprehensive restatement of EU trade policy since 2010. It is exceptionally ambitious – adding more FTAs to the already crowded stable of EU open and recently-concluded deals. It is also highly defensive in its attempt to win back political ground lost in the Transatlantic Trade and Investment Partnership (TTIP) and anti-globalisation debates over the last two years. From this balance come some interesting new ideas, a lot of practical questions about implementation, but also an opportunity to widen the way the Commission thinks about its own key role in improving trading conditions for EU businesses.
The debate has now started in earnest over whether the EU will – or must – award China ‘Market Economy Status’ (MES) in 2016. The status is politically sensitive for Beijing, but has no technical standing outside of EU nomenclature. However, it is linked to one very specific and narrow element of EU trade defence practice where the material impact for some businesses competing with Chinese imports is potentially very significant. The debate around MES in the EU is going to combine heated disagreement on the meaning of a fifteen year old treaty, EU-Chinese political relations and a liberal dose of globalisation anxiety. So how much does the decision actually matter and how will it get made?
While the eyes of the world were fixed on Paris in December 2015 for the COP21 climate summit, the 10th WTO Ministerial was also taking place in Nairobi in Kenya. WTO Director General Roberto Azevêdo described the package of measures agreed at Nairobi as the most significant package of reforms in trade in agricultural goods ever agreed. This is a fair assessment, although Nairobi exceeded expectations in large part because expectations of serious WTO multilateral agreements could not be much lower.