Public Affairs & Government Relations

FTI Consulting International Trade Bulletin – 17th February 2021

This Week In Trade

News emanating from Brussels dominates this week’s edition, with the European Commission’s anticipated data adequacy ruling on the UK set to emerge with a welcome verdict for UK business. Next, with the Commission’s Vice-President stopping over in London on Thursday for an early Valentine’s dinner with Michael Gove, we look at progress made on implementing the Northern Ireland Protocol. Finally, potential solutions to the longstanding WTO Airbus-Boeing dispute may provide new hope for Scotland’s distilleries in their battle against US tariffs.

FTI’s Key Headlines

EU-UK Data Flows To Continue With Upcoming Adequacy Ruling

One of the big hangovers from Brexit trade negotiations looks set to be resolved later this week with the European Commission expected to rule that the level of personal data protection in the UK is comparable to that provided in European law. Known as a data adequacy decision, the ruling will provide long-term security regarding the continuation of easy flows of data across the English Channel. Since January, data has only moved freely into the UK from the EU thanks to a six-month grace period signed off when the Trade Cooperation Treaty was agreed.

 

The ruling will have real and practical consequences for business. With global trade increasingly facilitated by cross-border data exchange, there is a basic and often underappreciated reliance on its unimpeded flow, be that intra-company, within a supply chain or between supplier and customer. Without a positive decision from the EU, British-based entities face losing the intrinsic entitlement to receive personal data from those based in the UK’s largest foreign market from July. In such circumstances, companies who want to continue doing business would need to establish bespoke legal arrangements, however bureaucratic and costly.

Though the Europeans Commission’s decision will be subject to scrutiny from the European Data Protection Board, it has no power of veto and the ruling is expected to take effect comfortably in advance of the 30 June deadline. Nevertheless, the ruling will be open to challenges that can be taken to the European Court of Justice (ECJ). There is precedent for the court successfully dismantling such agreements, with the wide-ranging “privacy shield” data sharing agreement between the EU and United States declared invalid by the ECJ in July 2020. The case serves as a warning of future difficulties should the UK diverge significantly from existing practice.

Northern Ireland Tensions Ease After Talks But Solutions Remain Distant

Talks between Cabinet Office Minister Michael Gove and European Commission Vice President Maros Sefcovic, have eased tension between the UK and EU regarding the Northern Ireland Protocol, the mechanism for governing trade across the UK-Ireland border following Brexit. Flying into London on Thursday, Sefcovic met with Gove to discuss the issues covered here last week. While the talks failed to deliver a decisive breakthrough, a joint statement – which described the conversation as “frank but constructive” – implies both sides are seeking to dial down rhetoric, which reached a peak when the EU briefly imposed border controls at the end of January as part of a move to control the movement of Covid vaccines.

 

Ahead of the next meeting between the pair, due before the end of the month, Sefcovic has agreed to meet with Northern Irish business leaders to hear of their experiences and gain a practical understanding of the protocol’s effect on trade. UK ministers will hope that the testimony delivered will further strengthen the argument for extending grace periods regarding the imposition of customs checks at the Northern Ireland-Great Britain border. A measure necessary to maintaining an open border on the island of Ireland. Gove has recently pushed for extensions to run until 2023, giving businesses ample time to prepare and policy makers time to identify and address potential issues.

However, that proposal has already been partially rebuffed by the EU, which has called on the UK Government to first address teething issues in their implementation of the protocol, before pushing for largescale changes. Sefcovic would have been sure to cover pre-existing issues regarding IT systems and customs checks in Northern Ireland when speaking with Gove on Thursday. Sources close to the Government suggest however that such an extension has not been ruled out completely, leaving a compromise perhaps on the table.

 

One potential outcome could see current grace periods extended by a matter of months, something in line with proposals outlined by Irish Taoiseach Michael Martin. Martin has asserted that he would not wish to see extensions go beyond a year, ensuring that focus remains on delivering workable solutions. However, across the border, Northern Irish First Minister, Arlene Foster, has advocated for the scrapping of the protocol entirely, calling on Prime Minister Boris Johnson  to trigger article 16. With constructive dialogue between Gove and Sefcovic continuing however, such an eventuality remains highly unlikely for now.

EU Considers Extending Olive Branch on Aerospace Tariffs

French, Spanish and German officials are locked in talks with the European Commission as Brussels looks to bring the 17-year dispute with the US regarding state aid subsidies to Airbus and Boeing to an end. While the World Trade Organisation (WTO) has previously ruled that both sides have been guilty of supplying the rival companies with illegal levels of subsidy, pressure is on EU Governments to reform first as its infractions have been judged to be larger. Paris, Madrid and Berlin continue to resist reform to the subsidy regime, even as blameless European exporters in other industries suffer under the weight of USD$7.5 billion in US retaliatory tariffs. While Brussels is also authorised to impose tariffs, they come with a far lower ceiling of USD$4 billion.

As Politico reports, at the heart of the issue is the Repayable Launch Investment (RLI) that provides Airbus with sizeable loans, which only require repayment if the aircraft model subsequently developed proves commercially successful. Discussions are ongoing as to whether to scrap the RLI programme completely or merely reform it. Although changes were made to the scheme last year to make it WTO-compatible, these were not enough to satisfy the Americans who argue they have already abolished their own subsidy regime. The French, German and Spanish Governments are all thought to oppose Brussels’ preferred move of phasing out RLI unless a well-developed alternative package of support is put in place. Some reports suggest generous new funding for EU defence programmes contracted from Airbus could emerge as a solution.

 

The move to address the dispute is relevant to the UK on multiple fronts. As a former participant in RLI funding for Airbus, the UK was slapped with a number of tariffs on US exports. In the dying days of the Trump administration International Trade Secretary Liz Truss made a clear effort to distinguish the UK from Airbus’s continental subsidisers and have the American countermeasures removed from British exports. Alas, she was not successful and would-be Scotch Whisky drinkers across the Atlantic still face the deterrence of a 25% punishment tariff. Even as the aircraft manufacturers continue to benefit from generous corporate welfare, the UK’s alcohol sector remains under the thumb of US tariffs that have already cost over £500 million and no doubt driven many exporters to drink. Additionally, as the UK, EU and US prepare to put up a united front with Japan and others over the actions of China at the WTO, the removal of any bones of contention between the various parties can only benefit the campaign.

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