Public Affairs & Government Relations

FTI Consulting International Trade Bulletin – 21st May 2021

This Week In Trade

A busy week in the international trade sphere as the EU takes the diplomatic step of postponing a raise in tariffs on a range of American goods. However, the UK meanwhile has stood its ground against the US’ much-lauded global corporate tax plan, calling for a fairer system for taxing the American tech giants ahead of negotiations at the G7 Summit in June. Closer to home, the UK has issued a call for evidence before it courts Mexico and Canada in its next round of deal-making. Fingers are crossed that another FTA will actually get signed off as frictions mount between farmers and Liz Truss over tariff-free trade for Australian agriculture.

FTI’s Key Headlines

Tasmanian Devil in the Detail 

It looks like the UK Government is choosing between farmers and FTAs as it ploughs ahead with an Australian trade deal, despite discontent in the UK’s agricultural sector. The Department of International Trade and the Department of Agriculture are said to be at loggerheads over the extent to which Australian farmers should be granted tariff-free access to the UK market.

Under plans being negotiated, Australia’s existing 20% tariffs would be phased out over the next 15 years to zero, in line with the terms for the EU. Word has it that Environment Secretary George Eustice is against a zero-tariff deal but Truss remains characteristically determined to get an FTA with the UK’s kinsmen Down Under over the line. Sealing the deal with Australia would be a big boost for “Global Britain” as the first big post-Brexit trade deal that is not a rollover of existing agreements.

Supporters of Truss have also suggested that scrapping the deal could jeopardise Britain’s chances of joining the hallowed CPTPP. The Australian High Commissioner has also warned the UK not to “pull up the drawbridge” over claims that are “beyond absurd.” However, farming lobbies argue that the principle of tariff-free access will become the benchmark by which other countries will measure their demands, with UK farmers left scrabbling for business against the world’s titans of the Agrifood industry, the very situation that Brexit is supposed to avoid.

The opposition of the National Farmers’ Union (NFU) has become increasingly desperate and apocalyptic as the deal with an efficient and modern agricultural producer draws closer. The NFU and its protectionist fellow travellers are predicting the ‘slow death’ of British farming, starting with the notably inefficient livestock farmers in marginal land in Scotland and Wales. But if ‘Global Britain’ is to mean anything it will require inefficient sectors to be exposed to the rigours of international competition so that the UK’s competitive industries and its consumers can benefit from new opportunities and choices. For all the hand-wringing of the protectionists it is difficult to get past the point that – on top of generous taxpayer subsidies – the NFU is demanding that consumers be denied access to high-quality, low-cost Australian food and efficient export sectors miss-out on opportunities just so farmers can preserve the status-quo. By following through with an Aussie deal, the Government is making it clear that ‘Global Britain’ is about new opportunities and benefits for ordinary Brits, rather than preserving the interests of politically privileged protectionists.

Tinker, Tailor, Tariffs Bye

An overture from the EU to the US this week on the fraught topic of steel and aluminium after the tit-for-tat tariff-slapping contest under the Trump administration. On Monday, the EU agreed to postpone plans to raise retaliatory tariffs on a range of American goods. Of no less significance, this was accompanied by a joint statement from both the EU and the US on addressing trade-distorting policies in these very industries by China; a material and symbolic return to Western norms.

Indeed, Biden is proving himself a far more accommodating partner than his predecessor, and the solidarity as both sides vowed to work together to find “effective solutions that preserve our critical industries” was palpable. The mutual goodwill extends beyond the metal industries, with the EU and the US reiterating a commitment to strengthening their “democratic alliance.” With China, accused of accruing excess capacity and distorting competition for companies in the US and the EU, this acts as a preview of the upcoming G7 summit in Cornwall next month. This will be the ultimate test for Western leaders, who will be expected to transform political rhetoric against China’s market-distorting trade practices into action.

The Tax Plan Cometh  

In a bold move against a growing western consensus, the UK has dared to disagree with the Biden Administration’s support for a 21% minimum global business tax rate. Whilst not rejecting the plan outright, Britain has stuck to its guns and pushed the US to ensure that any agreement includes a fairer system for taxing digital technology giants.

Taxing the tech titans is a hot topic that has been bubbling away since before the pandemic started, with many in Europe and the UK pushing for more punitive taxation rules that will hit Silicon Valley the hardest. The US has so far been noncommittal on this topic but claims that the tech giants continue to avoid paying the correct amount of tax are unlikely to dissipate rapidly, particularly with the UK due to coordinate further discussions among G7 allies when finance ministers meet in London next month.

Working on “a global solution to the tax challenges created by the digitalization of the economy” will definitely be on the agenda for the June gathering and it looks like Sunak is preparing to stand his ground after a year in which technology companies have reaped the rewards of click-happy consumers stuck in their homes.

Maple Leaves and Mariachis 

The Department for International Trade continues to stoke irons in many fires as it this week launched a call for input for businesses to shape a UK trade deal with Canada and Mexico, to start later this year. The public, businesses and other stakeholders have until July to give their two pesos on the best way to go about strengthening the UK’s existing trade relationships with their partners across the Atlantic.

So-called “industries of the future” will be high up on the agenda, with digital, data and services expected to take centre stage for the UK as they start negotiations. It is no surprise that Truss has hailed this as part of a “trail-blazing next generation of trade deals” given that both Canada and Mexico are members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The UK is nothing if not up front about its desire to pivot towards the Asia-Pacific region. Mexico and Canada may well be the steppingstones that land it a seat at the table. The geographically-inclined will also note that sandwiched between Canada and Mexico lurks a potential trading partner that Truss’ office would be only too willing to get on side. Canada may have an endless supply of maple syrup but the UK is wasting no time in sweetening up these potentially crucial trading partners.

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The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.

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