Hello from Brussels. A chest-beating threat from the US this week, as US Trade Representative Robert Lighthizer said the US wanted to renegotiate all its tariffs at the World Trade Organization. The implication is that free-trading America will raise some unless its protectionist trading partners lower theirs. The contrast isn’t quite as dramatic as he makes it sound, as we point out in Tall Tales of Trade today. In any case we tend to regard this as mainly pre-election theatre. Negotiations with other WTO members last months and will probably go beyond November. The most the US is likely to do any time soon is raise some tariff ceilings (“bindings”) while leaving the actual applied ones unchanged.
Elsewhere, the UK launched bilateral trade talks with New Zealand and Australia with a weird stream of consciousness from prime minister Boris Johnson about chocolate biscuits. Unfortunately, given the vast geographical distances involved, the fact that Britain’s Antipodean cousins already have pretty low tariffs, and their resistance to opening their public procurement markets, the estimated gains to the UK economy are homeopathically low.
We don’t place great store by these estimates, but the British government itself reckons a deal with New Zealand adds at most 0.01% to UK gross domestic product over 15 years, and might actually subtract 0.01% instead. (An Australian agreement does barely more.) If you’re in the UK, nip out and buy a bag of crisps after reading this and you might well have done more for the British economy than a New Zealand trade deal. On the British import side, we’d say “hooray for cheaper lamb!” except the Kiwis already have a big lamb quota into the EU that they don’t fill now. Fans of the deals are reduced to waving their arms around vaguely and saying geostrategic something Asia-Pacific relationships something Global Britain something something. We treat such people with scepticism round here.
Today’s main piece is on how the WTO as a rulemaking entity has more power than it seems, and this week probably stopped a football club takeover in the UK. Our chart of the day looks at the gulf between EU and US pork prices as the UK frets about overseas competition.
The quiet, persistent power of the WTO
“Another piece on WTO dispute settlement?” the cry goes up from newsdesks (not at the Financial Times, obviously) across the world. “Haven’t the Americans killed that?”
Well, no. Yes, the US has paralysed the Appellate Body. But WTO rules and judgments aren’t hermetically sealed off. Even when it doesn’t have much power to right wrongs itself, the WTO’s rules and judgments are woven into a network of international law and national regulation that transmits guidance back and forth.
WTO laws and rulings are regularly cited in investment tribunals, bilateral trade disputes and even the European Court of Justice. Despite its reservations about WTO dispute settlement, for example, the US referred to WTO rulings in its groundbreaking action against Guatemala for labour rights violations under the Central America Free Trade Agreement.
Influence also goes in the opposite direction. When Australia recently won a WTO case about plain packaging for tobacco products, completing a hat-trick of victories in different judicial systems over the cancer-stick lobby, the initial ruling cited various bits of an earlier judgment in the Australian High Court.
The question is whether these connections will survive US attacks on the WTO. There was an example this week of how it can, at least in an outward direction. It’s a tale (told in excellent detail here by my FT colleague) of how a Saudi Arabia-led takeover of a big football club in the UK, Newcastle United, has been cast into serious doubt by a WTO dispute settlement ruling.
It was announced on Tuesday that Qatar won a WTO intellectual property case against Saudi Arabia based on the Saudi government’s involvement in a television channel making unlicensed broadcasts of English Premier League matches. Now, the English Football Association’s “Owners’ and Directors’ Test” allows potential owners to be barred if they have committed an act in a foreign jurisdiction that would be considered a criminal offence in the UK. This is a big setback for the takeover. Imagine the humiliation for Newcastle fans of visiting supporters filling the away end at St James’ Park and chanting “You’re in violation of Article 61 of the Agreement on Trade-Related Aspects of Intellectual Property, and you KNOW you are.”
Neither Saudi Arabia nor Qatar is a member of the multi-party interim appeal arbitration arrangement (MPIA), the workaround replacement for the WTO Appellate Body. If it wants to, Saudi can appeal the ruling to a non-existent AB (“into the void”, as they say), leaving the case in limbo. But it seems that the ruling from the initial stage ought to be enough to convince UK regulators.
Another development this week was in a case we spotted and wrote about a while back. The EU is expanding the scope of trade defence by going after Chinese subsidies outside China, specifically targeting a company in Egypt making glass fibre cloth aimed at the EU market. This week the EU authorised antisubsidy duties on top of the antidumping levies it had already imposed.
So what? Well, as the exceedingly eminent trade law academic Joost Pauwelyn (newly appointed to the MPIA, as it happens) pointed out, you could see this as the WTO rules being implemented by a different means than WTO litigation. Pauwelyn told us: “If WTO dispute settlement becomes more difficult to use, you could see more of what the EU is doing at the moment against what it perceives as Chinese subsidies in Egypt — using WTO subsidies rules in EU anti-subsidy investigations, leading to EU tariffs, rather than filing a WTO complaint.”
So WTO laws and rulings still have influence elsewhere. But will its judgments continue to take influence from outside? Hmm. Harder. The US doesn’t like that. The US’s critique of the WTO dispute settlement is precisely that it regards itself as a court, and hence part of a wider body of international law. The US reckons it ought to act more like an ad hoc investment tribunal that makes one-off decisions. So if the Americans get their way and the AB’s powers are reined in, we might see fewer references to judgments elsewhere.
But whatever happens to the inward flow of influence, the WTO’s ability to affect rulings and regulation elsewhere has still got a bit of life in it for the moment. And we trust the appetite for stories on it will remain unaffected.
With the end of the Brexit transition period less than six months away and US-UK trade talks already well under way, there is growing concern in the UK farming community that it will not survive the coming onslaught of global competition. UK farming has some of the highest animal welfare standards in the world and the EU’s welfare standards are higher than in the US, which has enabled the gap between EU and US pork prices to widen.
Tall Tales of Trade
Lighthizer’s testimony in Congress supporting the plan to renegotiate tariffs was more of the usual NOT FAIR we have often heard from President Donald Trump and his administration, saying US duties were lower than those of their trading partners.
Well, notwithstanding Trump’s chuntering about EU tariffs on US lobsters (he apparently didn’t grasp that Canada had a trade deal with the EU and the US didn’t), the differences aren’t quite that dramatic. The US’s simple average of applied tariffs is 3.4% and its trade-weighted average 2.3%. You need to be a bit careful with trade-weighted averages, because if a very high tariff deters imports of a particular good, there will be an artificially low amount of that product in the weighting. But still. The equivalents for the EU are 5.2% and 3.0%, not massively higher. Switzerland? 1.9% trade-weighted. Japan? 2.4%.
Emerging markets such as Brazil and India have way higher ceilings (51% and 31% respectively), but apply much lower tariffs in practice. Their trade-weighted averages are 12% and 10% respectively. Lower-income countries tend to have higher tariffs for a bunch of reasons, including because they can’t afford to protect embattled producers with safety nets and subsidies as the US can. America had very high tariffs at an earlier stage of development too.
Does the US have comparatively low tariffs? Yes. Are they hugely different to those in similar countries? No. Is this worth upending the WTO for? You can guess the answer to that.
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