FTI Consulting International Trade Bulletin – 17th June
This Week In Trade
This week we review the main dishes served up in Cornwall by the Group of Seven and consider the lasting impact of the summit. Amid positive, if slightly vacuous, pledges made on promoting freer and fairer trade, the summit was capped off by the announcement of the UK’s first all-new post-Brexit FTA with Australia. The press coverage of the summit was dominated by the efforts of European leaders to get themselves pictured in a bearlike embrace with President Biden and President Macron’s hectoring of his host regarding rules governing the sales of sausages between Britain and Northern Ireland.
FTI’s Key Headlines
Scotch down under?
Australia and the UK signed on the dotted line this week over a dinner of Scottish salmon, Welsh lamb, and Australian wine at 10 Downing Street. The deal is Britain’s first wholly new independent free trade agreement since it joined the EU nearly half a century ago. A big moment for Global Britain no doubt, although critics of the agreement have argued that the British government has prioritized securing a quick deal with minimal benefits to the UK over a more comprehensive but harder to negotiate agreement.
The highlights of the deal are the elimination of tariffs on all UK goods, the opening up of new opportunities for British services providers & tech firms and enabling Brits under the age of 35 to travel and work in Australia more freely. British cars, Scotch whisky, biscuits and ceramics will be among the beneficiaries, industries that employ 3.5m people in the UK. Downing Street has pointed out that removing tariffs on Australian goods will save British households up to £34m a year. UK lawyers also stand to benefit as they will be able to practice in Australia without having to requalify as an Australian lawyer.
The deal was not won without a fight however, with objections from the UK’s agricultural sector nearly derailing the process. To allay concerns raised by the British farming community and the UK National Farmers Union the deal includes a 15-year cap on tariff-free agricultural imports for 15 years, using tariff rate quotas and “other safeguards” yet to be revealed.
The British government hopes that by allowing tariff free trade access with their new friends Down Under the UK’s ambition to join the illustrious Asia Pacific free-trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), is a step closer to becoming a reality.
Buddying up to Biden
There’s nothing like a G7 Summit to take the world’s broadcasters back to the playground– gossiping over who fancies who and getting hot under the collar over who has the nicest outfit. Whilst photos of the Boris-Biden “love-in” were pasted all over the front pages of the British weekend papers, the true test of the G7’s success will be the degree to which its members follows through on the joint communique released on Sunday.
In a further break with his predecessor’s protectionist agenda Biden is betting on a collaborative rather than confrontational approach to the US’s Western allies. In an extension of the transatlantic olive branch, the EU and the US also made peace over their 17-year dispute over aircraft subsidies for Airbus and Boeing, agreeing to pause punitive tariffs for five years and lifting the threat of billions of dollars in punitive tariffs.
Future cooperation on health, climate and economic recovery were unsurprisingly front and center of the G7 discussions as were clear-cut calls to contain the rising threat of China. Commitments in the “Free and Fair Trade” chapter of the communique included an arguably much-needed modernisation of the global trade rulebook to better address issues such as digitalisation and the green transition, with a promise to collaborate on key issues ahead of the WTO’s ministerial council (MC12) in December.
Yet it remains to be seen if these commitments are carried through. The summit provided no further clarification on addressing the differences on both sides of the Atlantic over how to reform the WTO’s dispute resolution arm, nor were further details revealed regarding the global corporate tax agreement. Overall, positive noises were certainly made but certain diplomatic sticking points suggest that there is still a lot of work to do to shore up global supply chains before the MC12.
The Sausage War
There were fears that Biden’s first words of greeting to the British PM as he touched down for the G7 summit would come in the form of an admonishment, after the US issued what was initially reported to be a démarche over the UK’s handling of Northern Ireland. A démarche – in diplomatic terms akin to a formal reprimand – is rarely exchanged between allies. Whilst the US subsequently denied the formal status of the démarche, the President’s message that the UK needs to resolve the issue was crystal clear. These rumblings ostensibly seemed allayed by the repeated reference to the two countries’ ‘special relationship.’ Yet there was one G7 leader who was determined to be the enfant terrible of the summit and rain on Boris’ big day with negative headlines focusing on EU-UK “sausage war” threatened to spoil the atmosphere of cooperation.
Resuming his beef with post-Brexit Britain, Macron made it clear that France expects the UK to stick strictly to the Northern Ireland protocol as written. For its part, the UK is now gunning for a more practical and pragmatic approach to implementation. Whilst the media focused on Macron’s apparent claim that Northern Ireland was not part of the UK, many onlookers, including the US it seems, view the episode as the UK’s refusal to lie in a bed of its own making. As the clash of bureaucratic cultures rumbles on, Macron, speaking to reporters at the G7’s conclusion, made the not-unreasonable suggestion that the two sides should stop wasting time on disputes about sausages.
In public and behind the scenes Johnson is pressing the EU to agree to a more “pragmatic” application of the rules, but if a resolution cannot be reached, he has threatened to unilaterally renege on part of the deal. Whilst the British PM may be hoping for the French public to slap down his bête noire in the Presidential elections next year, there can be no doubt that it is in the UK’s interest to address the problem of the Northern Ireland protocol as swiftly as possible.
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