FTI Consulting International Trade Bulletin – 10th September

FTI’s Key Headlines

Stopping the sausage wars 

Northern Ireland is back on the political agenda with the UK announcing it will extend the grace period governing customs checks on goods travelling from Great Britain to Northern Ireland. This is the third time the deadline has been pushed back. Last week, several prominent EU legal experts came out in support of the British government’s proposal, suggesting that Article 10 of the Northern Ireland protocol is now “redundant” and should be removed.

The EU responded in a conciliatory tone, stating that it took “note” of the decision but warning that it would not agree to a renegotiation of the Northern Ireland Protocol. Neither side wishes to see a repeat of this summer’s “sausage wars” played out on the front pages of the British press. Behind the scenes, both EU and British officials are increasingly confident that a solution can be reached that does not undermine the existing protocols.

Putin putting the squeeze on Europe’s energy supply 

Rapidly rising energy costs have been raising eyebrows in Brussels, with the cost of natural gas and electricity surging to record levels. That energy prices have shot up even though it is still summer, when demand is lower, has alarmed policymakers and sparked warnings from experts that Europe will face “a very tight winter”. Short-term power in Britain has also been affected with day-ahead prices at the UK National Balancing Point, a virtual trading venue for natural gas, reaching £1.31 per therm, more than four times higher than it was at this time last year.

Barclays has warned that Europe faces yet another “perfect positive storm,” this time concerning energy supplies. A dialling down of EU emission permits has combined with the cold and wet weather of the first half of 2021 leading to a threefold rise in carbon prices. Furthermore, Asian LNG demand is running hot diverting supplies that would otherwise head to Europe. At this time of year, European gas inventories are typically 80-90% of total capacity. This year, they’re at 58.6% in Germany and 48.4% in the Netherlands.

Fingers have also been pointed at the Kremlin, with the Russian President accused of orchestrating an energy supply crisis in Europe by restricting the seasonal flows of natural gas. Russia has limited the usual late summer flows of gas, which have typically been used to replenish European gas stocks before the winter months, to increase political pressure on Brussels.

In Putin’s sights is the EU’s certification of the Nord Stream 2 pipeline on the Kremlin’s monopolistic terms, which would breach EU energy law. Ratification would also go against the “solidarity” principle of Article 194 in the Lisbon Treaty and would leave East European states like Ukraine vulnerable to energy blackmail. The Kremlin has also expressed concerns about the EU’s Carbon Border Adjustment Mechanism, which threatens to hit Russian exports to Europe. All of which has left European policymakers praying that another Beast will not visit the continent from the East the coming winter.

Carbon levy on the horizon for global shipping

The world’s leading shipping associations have joined forces to push for a global levy on CO2 emissions from maritime vessels, to boost the industry’s green transition. The International Chamber of Shipping, which represents more than 80% of the world’s merchant fleet, has joined ships with Intercargo, the trade association for dry cargo shipowners, to submit their proposals to the International Maritme Organisation, the UN’s shipping regulatory body.

The proposals include a global levy requiring mandatory contributions for each tonne of CO2 emitted from ships exceeding 5,000 gross tonnes. Money raised from the scheme would be channelled into a climate fund, investing in green energy infrastructure, enabling the wider use of cleaner fuels such as hydrogen and ammonia.

Whilst it may appear strange for an association to push for a tax that will directly hit its members these proposals have to be considered in the light of the growing pressure on the global shipping sector. Maritime shipping is responsible for 90% of global trade and currently accounts for 3% of global CO2 emissions. The move is seen as an attempt by the sector to demonstrate its willingness to clean up its act. Policymakers have increasingly sought to bring shipping into line with other polluting industry with the European Commission announcing in July that it was considering adding shipping to the bloc’s carbon market.

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