A note from Roula Khalaf, the FT’s deputy editor:
Welcome to Trade Secrets, the first edition of a new newsletter about the twists and turns in global trade. We’ve created this in response to your growing interest in the story — to help you better understand the rapidly changing face of international trade and globalisation. Throughout the week, the FT’s leading experts on trade — including Brussels-based Alan Beattie and Washington DC-based James Politi — will offer you insights and analysis you can’t find anywhere else. Your Trade Secrets editor, based in London, is Alice Ross. You’ll be hearing from all of them in the coming weeks.
On the menu today, you’ll discover a new weekly Tit-for-tat section that will be three brief questions with a trade expert. This week it’s Robert Zoellick, former World Bank president. Today’s chart of the day delves into US alcohol imports from the EU. Every day, we’ll also curate the best trade stories from our sister publication, the Nikkei Asian Review, in Tokyo talk, and other must-reads. All of that follows the main story today, an analysis of how the post-Brexit trade talks might shape up.
Trade Secrets will be published Monday to Thursday: do sign up here to receive it in your inbox. And we want to hear from you. Send us your reaction to what we produce, your questions and please share what else you’d like us to write about. We hope you enjoy reading. Over to Alan.
Fair-to-middling force, meet immovable object
By Alan Beattie
Honestly, we’re not going to make Trade Secrets all about Brexit. But Saturday’s events in London got us thinking about how MPs and voters should now lift their eyes from the (admittedly riveting) question of the optimal deployment of customs officers in the port of Belfast. Britons now need to focus on the next stage after the withdrawal agreement: a potential final trade deal if the UK does leave the EU.
Mainly they should be aware how limited the UK’s options will be in negotiations and how manifest is the imbalance of power. In other words, the next episode will probably look quite a lot like the last one.
The withdrawal talks took two-and-a-half years. From the off, the UK, pressed by a self-imposed deadline, should have realised it would essentially be picking from a limited menu offered by the EU. (The one somewhat substantive concession it managed to get, an all-UK backstop, proved too politically toxic to use.) Britain ultimately selected the Irish Sea border with a few limited changes, including a Potemkin dual customs arrangement and a Northern Ireland consent mechanism that might start up the whole sorry process again in a few years’ time.
The conclusion: the EU knows how to do trade talks. From the beginning, Brussels hammered out a broad consensus among its domestic constituencies. It credibly committed to its negotiating positions through transparent publishing of red lines. It expertly used time and sequencing, extracting an early promise to maintain an open Irish border that affected all future negotiations.
These tactics were conceived by Sabine Weyand, Michel Barnier’s deputy. Weyand is now the head of the EU trade directorate. You almost feel sorry for whichever British chief negotiator — the UK hasn’t yet decided how to do trade deals — ends up against her.
The pattern during withdrawal talks will recur in trade negotiations. The EU has already prepared its basic menu of options, the “Barnier staircase” trading off greater access against more commitments. It will also insist the UK adhere to “level playing field” (LPF) provisions retaining EU rules on environmental, labour and state aid standards if it wants a particularly close trading relationship.
The LPF debate is likely to be a tough one. Opinion, particularly in the European Parliament, favours loading up trade deals with ever more environmental and labour conditions. Brussels is pursuing a pioneering labour standards case against South Korea. It’s only going to get harder for the UK to have privileged access to the European market while undercutting EU standards.
Meanwhile, as before, the UK will start talks flailing around with no domestic consensus on what it wants. Labour likes some LPF measures (labour standards) but not others (state aid). Many businesses are desperate to follow EU regulations closely, but it’s unclear whether the government agrees. Officials and ministers from Defra, the environmental and farming department, dislike the idea of authorising US-style chemical-washed chicken, while the international trade department is more enthusiastic.
The talks are up against a supposed final possible deadline of 2022. At the rate things are going, the UK will be doing well to finish negotiating with itself by then, let alone engaging with the EU.
Time for a reference, probably not for the last time in Trade Secrets, to this newsletter’s officially designated favourite film, The Princess Bride. The hero outwits a villain who has captured the princess by inviting him to choose between two cups of wine, one containing poison. The villain ties himself in logical knots trying to guess correctly, drinks, and falls dead. The hero then explains that both cups were poisoned: he had spent years building up an immunity to toxin.
That’s what it’s like for a small or inexperienced government to sit down with the EU. Brussels is way ahead before the game starts. It has built up an immunity to most things a negotiating partner can do to it. MPs and voters might want to note: the battle of wits doesn’t end well for the novice.
US drinks importers got their rounds in before the bar closed, or at least before American tariffs on European liquor took effect this month, imposed after the US victory in the World Trade Organization Airbus case.
Robert Zoellick, former World Bank chairman, joins us today to answer three blunt questions.
How did the US fall out of love with the WTO even before Donald Trump came along?
As the WTO expanded membership, its unanimity requirement paralysed efforts to develop new rules and adjust to huge changes in the international economy. Furthermore, competitive developing economies held on too long to “special treatment” and higher barriers, undermining political support in developed markets. The WTO needs to permit negotiations among groups of members that agree to liberalise and develop new rules together, while preserving a set of baseline commitments for all.
Should the US Congress be reining in the Trump administration from confrontation with China, and how?
Trump has abused Congress’s delegation of negotiating authority, which has been a cornerstone of US trade policy since the Reciprocal Trade Agreements Act of 1934. Congress should limit the president’s licence in specific areas (such as the national security justification for tariffs, or with free trade agreement partners), without returning to the old ways of Congress setting individual tariffs. As for China, the US agenda — in concert with others — needs a range of approaches (co-operative, competitive, imposing costs) that vary according to the problem.
In retrospect, was it a good idea for the US to go down the route of bilateral trade deals?
The US used bilateral FTAs to establish new rules for cutting-edge topics — such as services, investment, intellectual property, trade facilitation, data, anti-corruption, the environment, and labour — and to maintain political momentum for opening markets while the WTO has been paralysed. Successful experience can lead to expansion regionally — for example, through the TPP (where six of the other 11 nations already had the experience of FTAs with the US) — and some day among like-minded economies in the WTO. [Former US secretary of state] Cordell Hull used bilateral agreements in the 1930s and 1940s to advance the global rules that underpinned the GATT (General Agreement on Tariffs and Trade) in 1947. In contrast, Trump’s bilateral deals seek to manage trade, not develop new rules and eliminate barriers.
● Boris Johnson prepares a fresh bid to push his Brexit deal through parliament
● Rana Foroohar on what the battle between Airbus and America tells us about the hypocrisies in the global trade system
● José Viñals, group chairman of Standard Chartered, writes in the FT that trade will continue to grow despite US-China tensions
● India accuses China over influx of cheap bicycles from neighbours
● Fearing spies, Huawei redeploys US-linked executives: sources tell the Nikkei Asian Review that the Chinese tech giant is concerned that senior executives and scientists with US links could be co-opted by American agents